How to position yourself competitively to buy property

Despite national headlines, the Santa Barbara real estate market remains strong, and buyers are finding it quite competitive.

Forty-five percent of the homes sold along the South Coast in January sold at or above the list price. Generally, a home that sells above the list price did so because of multiple offers.

Right now, there is only a 1.9month supply of homes. This means that if no new listings were to come on the market in the next 1.9 months, we would be out of homes to sell.

Because of the low supply of homes, buyers are often competing with other buyers for the same home. Recently one home in our area received 22 offers, which means 21 buyers lost out and are still in the market for a new home.

When evaluating multiple offers, sellers not only look at the offering price, but they also look at the terms of the offer. It doesn’t matter what the purchase price is if the buyer does not complete the transaction. One of the most important factors that a seller takes into consideration is the buyer’s ability to obtain financing.

The strongest offers are the ones where the buyer has cash and does not need to obtain a loan. These are known as “allcash” offers. Approximately 25% of our transactions have had allcash offers.

The question for potential buyers is, “How do they compete in this competitive market?” One of the answers is to line up their financing in advance of making an offer.

Almost all offers these days are accompanied by some sort of pre-qualification letter from the buyer’s lender that is used to assure a seller that the buyer will not cancel an escrow because they were not able to obtain financing.

The purchase agreement that is used by almost all Realtors is produced by the California Association of Realtors and was revised in December.

The revised purchase agreement lists three types of prequalification:

• Pre-qualification letter:

Pre-qualification letters can be provided based on a phone conversation between the buyer and their lender. With a prequalification, income, credit and assets are not verified. A pre-qualification letter is much weaker in the eyes of a seller than a pre-approval letter.

• Pre-approval letter:

With a pre-approval letter, the lender has actually received a complete written application from the buyer and income, credit and assets have been documented and verified. A preapproval is based on an analysis by the loan officer and while more reliable than a standard pre-qualification, it is less reliable than a fully underwritten pre-approval.

• Fully underwritten preapproval:

A fully underwritten preapproval is based on the same items as a pre-approval.

However, instead of being solely analyzed by the loan office, it has been pre-approved by the underwriter, who is the person who will make the final decision as to whether the buyer obtains the loan.

The underwriter will initially review the file and will issue conditional loan approval subject to conditions that have to be met prior to the lender funding the loan.

With a fully underwritten preapproval, these conditions have already been met, and the only items needed to fund the loan are a fully executed purchase agreement and preliminary title report. This is the strongest type of pre-approval as it gives the seller more assurance that the deal will close.

The other advantage is the lender has a complete package and has already gone through the