As we move into year #3 of an up market, houses which are priced right and which are updated to the tastes of the buyers are selling very quickly – sometimes with multiple offers. This is a tell-tale sign that you’re in a seller’s market.
That shortage of inventory especially in the lower to mid level of the market is challenging some buyers with finding their dream home. True, there are many great homes out there, but there are more buyers attracted to fewer desirable homes and neighborhoods which means that buyers are competing with each other. Yes, once again we’re seeing multiple offers driving the price over the asking price in many cases. Great for sellers. Not always great for buyers.
Prices are creeping up steadily. The median price of homes is selling 12 percent above the median price a year previously, according to Ryan Lundquist a local Real Estate Appraiser from his Sacramento Real Estate Blog site.
We’re in a seller’s market and that means that buyers need to be prepared if they want to get the right house a the right price. You want to start looking at houses online to get an understanding of pricing and features and to narrow down neighborhood choices.
At the same time, it’s imperative to visit a mortgage lending professional who help buyers to secure financing. What many don’t know though is that these same lenders also help buyers know what to do to clean up any credit issues that would prohibit them from getting financing. We know that the market knocked many buyers for a loop and good lenders are now acting in a longer term role of guiding those buyers back to a “qualified” applicant state by providing specific steps to take to clear underwriting hurdles. Not all lenders were created equal though, so ask your Realtor to recommend a competent lending professional. Realtors work very closely with great lending professionals and they are only going to recommend the best because a lender who fails to get a client funding is going to cause everyone to lose (buyer, seller, realtors, etc.).
Here are 11 tips for buying a home in a hot Seller’s Market:
- Get pre-qualified for a mortgage or better, get pre-approved before you start actively searching. Why? You’ll know what you can afford. The most important reason to talk to a lender ahead of time is to look at your credit through the lender’s “eyes” so to speak. A good lender is going to prepare you to purchase by telling you the real deal about how to get the lowest interest rate or even qualify. Also, Realtors will be more apt to work with you because it indicates you’re a serious buyer. Think of the time and money it takes to drive a buyer around to find a home. If that buyer can’t buy or can’t afford the homes they are previewing, then it’s a waste of time for everyone. If you just want to dream, go to open houses!
- Find a good agent. A buyer’s agent costs NOTHING because the seller pays the commission from the selling side of the transaction. Ask friends and family for referrals. Look for a full-time agent who works often in the neighborhoods where you’re looking. If you can only look for homes on weekends, don’t hire an agent that takes weekends off. Find someone who returns your calls! This seems so obvious, but before I became a Realtor some agents I called never returned my calls. You may want to interview several agents to find a good fit. Much of that “fit” comes down to relationship and trust. Are you heard? Can you work with this person?
- Do your research. The internet is a great source of information but not all information is good or accurate. Did you know that Zillow, Trulia, and Redfin aren’t very accurate? They don’t have the most up-to-date information of listings because they don’t get updated as often as the Metrolist service that agents subscribe to. Research communities, neighborhoods, city council, HOA, school and the like especially if you’re considering an area where you haven’t lived before.
- Visit neighborhoods you’re considering at different times of the day. A neighborhood that is quiet during the middle of the workday may have a lot of traffic and noise during the early evening or weekends because of proximity to a park where kids’ sports games and practices draw a large crowd. Get out and walk the streets and talk to people in the neighborhood. Drive to and from work during your commuting times to get an idea how traffic in a prospective area is.
- Expect to provide your life history for a mortgage! Just kidding! The pendulum has swung in the most extreme opposite direction from the free-wheeling days when you just had to have a heartbeat to get a mortgage and we suffered a serious housing meltdown as a result. Now, lenders have become much stricter about documentation, income verification and other paperwork. Just remember, qualified buyers can still get a mortgage but it’s going to be more of an obstacle course to get there.
- Distinguish between your needs and your wants. In a competitive market, most buyers find they have to compromise somewhere to find their dream home. Your compromise could be location, amenities, or condition of the home. If you go through this exercise before you start seriously looking, you have a powerful model to guide you when the emotions start kicking in and you want to make an offer on a house. A good Realtor will walk you through this exercise before you start looking and will help you remember what you said was important.
- Be prepared to move fast. It should go without saying that a home that is priced well, in a great location, and in good condition will sell quickly in a seller’s market. You need to be ready to make a decision to make an offer when you find the home you love. If you want to go home and sleep on it, you will probably never sleep in it!
- Don’t expect a screaming deal. Let’s just go back to the fact that this is a seller’s market so great homes are going to sell very close to their asking price and sometimes with bidding wars, they will sell for more. This doesn’t mean you can’t find a great deal, but it will be on a home that isn’t typically move-in ready. It will be the diamond in the rough and you have to be ready to make it shine to reap the value.
- Understand that no house is perfect. What?! If you’re smart, you’re going to get your home inspected before you purchase and if you have a great inspector, they will write a report with all the things that they found wrong with it. The purpose isn’t to get the seller to fix everything the inspector finds because if there are multiple offers, the seller can accept another offer where they aren’t being asked to fix everything even if the offer price is lower than yours. The real purpose of the inspection is primarily to find MAJOR things that will prevent you from buying the house. One other note of caution, even the best inspectors don’t find everything. They can’t find an AC system that isn’t broken but will break the first month you move it. That’s where a home warranty is important. Ask your Realtor about home warranties.
- Sweeten your offer. Price isn’t the only term up for negotiation. You want to make your offer the most attractive to the seller and you can do this by asking your agent to find out what’s important to the seller. Is it a faster or slower closing? Would waiving or shortening contingency time frames be of benefit? Would a rent back period be something of value?
- Don’t buy more than you can comfortably afford. Lenders will often approve a buyer for a larger monthly payment than what works for the budget. Remember that homeownership comes with other costs such as insurance, taxes, lawn maintenance, repairs, and even higher A/C bills especially in our hot summers.
So there you have it. If you are a buyer, hopefully you are more informed about today’s market. Of course, this isn’t everything there is to know either. If you know of someone who is interested in buying or selling, I’d be happy to help them realize their real estate goals! Contact me 916-293-1734 with any questions.