Home Buyers Need Cool Heads In Hot Housing Markets
Buying a house can get downright competitive these days.
Nationally, the demand for homes has outstripped supply. Mortgage interest rates remain very low.
Household incomes are on the rise. And prospective purchasers are getting off the fence and increasingly committing to a property of their own.
Consequently, would-be buyers must prepare to act fast and pursue effective strategies to win their desired dwelling.
What’s Driving The Demand?
Bill Golden, Realtor with RE/MAX Metro Atlanta Cityside, says rivalry for residences today is significant due to several factors.
“We’ve had record low inventory for a couple of years now, which creates fierce competition for buyers,” says Golden. “This is mostly due to the recovery from the recent recession.
“Sellers on the top end are reluctant to sell, as they are still trying to recoup the perceived value they lost during that time. This, in turn, stalls the move-up market, which creates a tight market for first-time home buyers.”
As a result, home seekers need to be ready to clear hurdles along their path to homeownership.
Get Professional Help
“Expect to be in competition with other buyers for the same home, and be prepared to pay asking price or over it,” says Timothy Jacquet, senior vice president with Apple Capitol Group in Arlington, Texas.
“Also, make sure to choose a home carefully – one that you can grow in, meets your needs, and has favorable school and community options. And enlist an experienced REALTOR® or agent who can negotiate on your behalf and is skilled at closing deals.”
Rebecca Mason, executive vice president and head of sales for New York City-headquartered OneTitle National Guaranty, agrees.
“Prospective buyers should utilize the knowledge of their entire team – including their real estate agent, real estate attorney, and mortgage provider – to educate themselves on the state of the market in which they will be participating,” says Mason.
A Pre-Approved Buyer Is A Serious Buyer
Jim Esposito, Realtor with Intercoastal Realty in Fort Lauderdale, explains that preparation is crucial if you want to outmaneuver other buyers vying for the same property.
“You need to know what homes are selling for in the neighborhood you’re shopping in so that you can recognize a good deal when it hits the market,” says Esposito, adding that it’s important to scrutinize the list of comparable properties your agent can provide.
“In addition, get the financing process underway and get all the paperwork together your lender requires.”
This also means obtaining a pre-approval letter from your lender that you can show to the buyer that demonstrates your sincerity.
“By getting pre-approved, you will also know your buying power and how much you can increase your offer price to still remain within your payment budget and loan approval,” Wes Kleckley, branch manager for San Antonio, Texas-based InterLinc Mortgage Services, LLC, recommends.
Know Your Limits
It’s vital to determine your ceiling, too.
“You should set a limit before bidding as to how high you can go. This will prevent you from exceeding your budget and paying too much for the home,” notes Kleckley.
“Your agent can also help you determine maximum price based on their market analysis.”
Jacquet advises setting a hard limit on what you’re going to pay, and if the price escalates beyond that amount, “Be prepared to walk away,” he says.
Be aware that if you want to purchase a property for a higher price than its appraised value, you’ll have to cover the difference out of your own pocket, says Collin Bond, licensed associate real estate broker with Douglas Elliman in New York City.
For instance, if you’re buying a house for $200,000 with five percent down ($10,000), and it appraises for $190,000, you must negotiate a lower price or come up with an extra $10,000 downpayment.
Winning the Battle....
When it’s time to make an offer, make it a serious one after consulting with your agent.
“If you try to lowball your bid, you might alienate the seller. Lowballing only works when the property’s been sitting there for a while,” says Esposito.
“Remember that it is often the first buyer who engages the seller and negotiates the best price possible that ends up getting the deal.”
Be ready to respond punctually to a counteroffer to your initial offer – experts recommend doing so within 24 hours.
“Know what you’re willing to do so that you can make a quick decision if you are given the opportunity to up your bid,” says Golden.
“Sometimes sellers will take into account that you jumped in quickly.”
....Without Losing The War
If you get caught in a bidding war, proceed cautiously.
“You can get so caught up in the moment and in beating the other bid that, suddenly when you’ve been notified that you’ve won the bid, a bad case of buyer’s remorse hits and you have to back out of the deal,” Mason says.
“One of the most underrated aspects of the negotiation process is the momentum at which the negotiation takes place.
“Ask how the seller is handling the multiple bid process – is it individually with each bid? Is there a deadline for everyone to submit their highest and best offer? Is there an expected timeframe by which the seller will make a decision?”
By setting out in advance what your expectations are, “this can be a much less stressful period,” says Mason.
Extra Considerations When Buying A House
Be cautious if the other party or parties are not acting in a straightforward manner. If there are unexplained delays in communication from the seller’s side, or the parameters keep changing, consider moving on.
“It can be a red flag that getting to a signed contract may be difficult,” adds Mason. “If things don’t feel right, don’t be afraid to walk away.”
Additionally, if you’re going up against an all-cash buyer competitor, you can opt to waive your mortgage contingency to sweeten your offer to the seller.
“Mortgage contingencies are standard in a contract of sale and state that, if the buyer is turned down for financing, they are able to have their deposit returned,” Bond says.
“However, if a buyer has strong financials and is confident that they are able to obtain a mortgage, they can wave this contingency – which essentially makes their offer just as strong as an all-cash offer.”
Lastly, don’t get discouraged if you don’t win the bid.
“Keep a level head and know that there always be another house,” Golden advises.
“Every buyer that I’ve ever had who has lost a house in a bidding war has ended up buying something they like even more in the end.”
What Are Today’s Mortgage Rates?
Mortgage rates remain low. It’s the ideal time to request a rate as part of your home shopping due diligence.
Get a quote, which requires no social security number to start, and comes with access to your live credit scores.