January 2017 – The market is crazy right now for anyone buying a home under $350,000. There are currently more people wanting to buy a house than people selling. Demand is high and supply is low. Low inventory means buyers need to compete with other buyers to get a house. Sometimes that competition gets intense. If you want to own a home within the next few months, you’ll need to position yourself for winning. Here are the key steps for buyers in a tight seller’s market.
1. Have all lending pre-work in order. This means you’ve been pre-approved with all paperwork filled out. Have ready everything your lender will ask for—pay stubs, tax documents, W-2s, or anything else they require to secure your loan once you’re under contract. If you’re lender has only pulled your credit score, that isn’t enough. When competing with other buyers, the seller is not only looking at the best price, they’re looking at who is most financially sound to close the deal without delay.
2. Have cash available for earnest money. Make sure you have in mind how much earnest money you’ll need when making an offer and that you’re liquid enough to cover that amount. The amount to put down as earnest money is debatable and varies by location. But certainly sellers in a tight market will expect that some kind of earnest money accompanies the buyer’s offer.
3. Know what you want. Your buying experience will be more exciting and less frustrating if you first take time to consider what you truly want and need in a home. List your must-haves and stick to viewing homes that don’t fall short of something high on your list. This will help eliminate confusion and pressure to consider something that won’t work for you in the long run. On the flip side, recognize which features or amenities you’re willing to sacrifice if no best-case scenario appears on the market.
4. Understand all costs. Sometimes buyers mistakenly focus only on their monthly mortgage payment. They look at homes that fall into the highest range of what their lender will lend. Don’t forget to consider property taxes, insurance, utility expenses, maintenance expenses, and HOA fees. Find the living expense number that is comfortable for your family and stay in that range when you conduct your house search. You don’t want to be the winning bidder on a home and then discover you’ll be house poor after closing.
5. Be ready to act quickly. In a seller’s market, buyers will often look at a home the first day it’s on the market to try to beat the competition. You need to do the same. If you see something you like, you may not have a night to sleep on the decision. Be ready to make up your mind quickly and write an offer. You and other buyers may have already felt burned by losing out to someone else on another home. Deciding as soon as you’re there is stressful, but if you know what you like and you’ve seen a good number of homes already, you should develop a sense of confidence in trusting your gut.
6. Write a strong offer. Because you’re in competition with other buyers who probably want the house as badly as you do, your offer needs to be a good one. If you and your Realtor® feel the price is within the house’s appropriate range, you may need to offer asking price or just above. If this goes against your nature, it may take a few times of losing out to higher bidders before you find it’s a necessity. Also, price is not the only negotiating factor. The fewer contingencies the better. Sometimes buyers ask for things like replacing the carpet in a particular room or fixing a door that doesn’t shut properly or replacing a window’s broken seal. Leave these kinds of issues out of the deal if you want leverage over other buyers.
7. Be willing to make cosmetic changes. If a particular layout, location, and size of a home happen to work for you but cosmetic things are bothersome, you made need to get over the ugly. Things such as faucets, carpeting, paint color, wall paper, and even outdated countertops are all cosmetic fixes that can be changed with minimal inconvenience. Sure, it’s more desirable to move right in with everything the way you want. But you’re in tight market and that may require some “give” on your part. Envision the bigger picture. Remember the things that are harder or impossible to change, like having only three full-size bedrooms instead of four or having a home that backs up to a highway. While cosmetic changes do mean further cost and effort, you may find that it’s better to secure a good home you can easily improve than wait for something more polished to come on the market that you’ll also have to compete for, and likely at a higher price.