Are you an Austin Buyer or a Contestant?

by Steve Crossland, REALTOR in Austin TX on March 10, 2013 · 7 comments

Frustrated Austin Home BuyerIf you’ve tried to buy a house in Austin lately, in an area of high demand and low inventory, such as Southwest Austin, you may have run into some competition. In fact, you most likely have. As of this writing, there are 43 Active listings and 84 Pending listings in SW Austin. I won’t go into a breakdown of what that means statistically, but let’s just call it a Mega-Seller’s-Market and leave it at that.

Other buyers want the same house you want, often the first day it hits the market. A new listing in South Austin 78745 that I showed a buyer a few days ago had a parade of buyers waiting in line when I got there, and more when we left. An offer I wrote today for a SW Austin home that came on the market 3 days ago has multiple offers and we’ll see how ours did tonight or tomorrow. It’s really, really crazy out there.

This type of market changes the way you have to approach your home buying effort in Austin. You are no longer “shopping” for a home, you are competing for a home. You are not a home buyer, you are a contestant. You are not trying to negotiate an acceptable offer with a seller, you are trying to beat your opponent(s), the other buyers, by making a better offer. Suit up, game on. And you’re not able to know what it will take to make your offer “better”, you can mostly only guess, then decide how high you want to jump.

This is disconcerting and frustrating for those unaccustomed to the stress. It can tie you in knots emotionally. It’s too much for some buyers, and they simply bow out of multiple offer situations, not wanting to compete at all. Others get it right away, put on a game face, and bring their A Game to the first offer, crushing the competition and “winning” a home on the first try. Still others, go through several failed offer attempts before they can muster up the fortitude and grit to throw down a wining offer. If you’re one who keeps losing, read How to Win Multiple Offers in Austin for some tips that will help you and your agent increase your chances of coming out on top.

Are we in a Bubble?
I’m not ready to call this a “bubble”, but this marks about 12 months now of very strong demand and shrinking inventory in many areas of Austin. Many homes have been driven up 3% to 5% or more above list price. That said, appraisals are putting a damper on some of these, as the home will sometimes not appraise for the sales price. When that happens, buyer and seller will usually renegotiate.

There simply are not enough homes coming on the market to supply all interested buyers, and that’s what’s causing the flurry. This is not true in all areas of Austin, but it is in most ares of Austin where the location and/or schools are deemed “good”. NW Austin is strong. Central, SW, East and South Austin too. And up into Cedar Park, some of the new home builders are experiencing the strongest foot traffic and sales since 2006. Many have waiting lists for new sections not yet released.

So where does that leave you as a buyer? Unfortunately, depending on your specific circumstance and personality, it leaves you needing to step up your game. You may not want to be a “housing contestant”, but the sooner you accept that reality, the more ready you’ll be to “win”.

And you better have a good agent. Sorry if that sounds like “Realtor Hype”, but I’m astonished at the number of Austin Realtors who can’t even write a mistake-free offer, much less offer top shelf strategy advice to their buyers. Don’t hook up with a Dummy Realtor. Find a veteran. A Black Belt Realtor.

Get your financial and loan stuff in order, create the most flexibility possible with regard to your moving time window. Have a “Plan B”. Be willing to offer the seller a lease-back, which is perhaps the second most powerful advantage (next to price) that you can give your offer. Get ready to possibly or probably pay over list price.

It’ll be ok, paying “too much”. We have plenty of running room ahead of us with this upswing in the market, and your low interest rate itself is worth more to you than a lower price would be. Do the math compared to being back at 6 or 7 percent interest rates. Put things into perspective. Decide what it will mean to you to NOT have a new house, and decide if you’re willing to accept defeat. If not, get out there and compete to win.

But is there a Limit?
Yes. All that said, I’m still advising buyers to walk away from some of these deals. Not every multiple offer situation is worth your best effort. Don’t get sucked into the hysteria on every deal. Be prudent. This is a subjective decision you’ll need to make, specify to each home. But some of the older homes built pre-1990s have a lot of embedded condition issue costs. It may not be worth paying over list AND absorbing the near-term expenses of curing what we call “deferred maintenance”. You have to factor in whether the roof, HVAC, electrical, plumbing and foundation represent possible “big ticket” expenses waiting to happen, and add that amount to what you’re paying. That’s when you need an experienced agent who can size up a house and spec out a range of costs for you and help you understand the true costs of a particular home. If the numbers don’t make sense, let someone else win that one.

Good luck! Feel free to comment with your own recent Austin home buying or selling experience.

{ 6 comments… read them below or add one }

1 Jason Grote March 11, 2013 at 6:38 pm

Why do you think the inventory is shrinking? Is it simply because folks are moving here and nobody is leaving? We are about to list a property in Cherry Creek and I am watching the feeding frenzy ahead of us. What a unique situation both buyers and sellers find themselves in!

2 Woody March 12, 2013 at 12:09 am

This is a wonderful blog, but for those making bold predictions remember that three years ago everyone was a seller and prices were low. Now everyone is a buyer and prices are high. The same can be said for stocks, bonds, and just about any other asset class. This is definitely not an Austin real estate phenomenon. Whether it last and for how long, nobody knows. But we shouldn’t take credit for or make future predictions based on something that has far more to do with Federal Reserve or California whacky government policy. Austin still has a very, very small business community. Job creation is mostly lower end on the income scale.

3 Daniel Gates March 12, 2013 at 10:59 am

Great Website. So “NW Austin is strong. Central, SW, East and South Austin too.” Is there a reason for th renewed interest in South Austin? – CotA, Southpark Meadows, SH-130? or are people getting pushed out from the traditionally middle class areas of SW Austin? We are looking at the area currently, and we were wondering about the long term trends for the area. Thanks!

4 Steve Crossland, REALTOR in Austin TX March 15, 2013 at 9:54 am

@Jason – New jobs, renters coming off the fence, move-up sellers staying put because they can’t find their next home. Lot’s of reasons for the sudden tight market.

@Woody – We’re seeing a lot of high income people coming to Austin from out of state. Business owners too, relocating the entire business. Also flex workers who can work remote from anywhere, and they want to be in Austin. The “lower end” income jobs affect the rental market more than the sales market, and the rental market is very strong also.

@Daniel – Long term trends look solid for any close-in area with good schools and shorter commutes. But even the “sprawl” areas such as Ranch at Brushy Creek are seeing new home builders stampeded with buyers. I have one under contract there as well and the onsite reps are inundated.

Like I said, I really don’t want to call this a “bubble”, because I think we’d need to start seeing prices that don’t make sense first. So far, the price bumps are not “crazy”, though it can seem that way on any particular deal. Austin is still “affordable” based on median income to median sales price ratios, but we can’t sustain multiple years of double digit appreciation, should that start happening.

Steve

5 Tim March 18, 2013 at 12:10 pm

Daniel, I can say from when I lived at Manchaca and Dittmar that proximity was the main appeal, and I think that’s getting stronger for far South Central Austin. I could jump on Manchaca, Congress, or South 1st and be downtown in 15 minutes or less. I think it’s very appealing to people who want a slightly more urban lifestyle, but can’t afford closer in neighborhoods. It’s quite nicely served by public transportation as well.
If the commuter rail between San Antonio and Austin ever gets built I would imagine that area would explode even more.

6 Brian June 1, 2013 at 8:45 pm

Great article and the comments are good too. I’m not ready to call it a bubble yet but it is indeed an interesting market for buyers and sellers. I still think there are good opportunities left though.

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