In some ways, buying a house today is harder than it’s ever been. But that doesn’t mean one shouldn’t buy. After all, interest rates are still at near-record lows, which means lower monthly mortgage payments and potentially larger home buying budgets.
But how do buyers win the house of their dreams when the odds are stacked against them? As they say, nothing worth having comes easy. With proper planning and a whole lot of patience you can be successful. Here are a few ways to prepare for buying in today’s challenging market.
Understand the lay of the land
The National Association of REALTORS® (NAR) reports that the median existing home price in May was $350,300, up 23.6% from the same month last year. According to NAR, “this is a record high and marks 111 straight months of year-over-year gains since March 2012.”
Total housing inventory at the end of May was up 7% from April, but still down 20.6% from one year ago. In a press release, NAR’s Chief Economist Lawrence Yun said, “lack of inventory continues to be the overwhelming factor holding back home sales, but falling affordability is simply squeezing some first-time buyers out of the market.”
REALTOR® Rob South with RE/MAX Real Estate Professionals says that low inventory, stiff competition, and rising prices mean that buyers are at a clear disadvantage in today’s market.
“In the past, the listing price was the starting point, and the goal was to get the home somewhere below that number,” he said. “In the current market, the listing price is probably on the lower end of what a property will ultimately sell for. Today’s buyers need to be realistic and shift their mentality. It’s not about getting a deal; it’s about winning a home by beating the competition.”
Be financially ready
Obtaining a mortgage pre-approval is an absolute must and should be the first step in the home buying process. A pre-approval not only determines how much you can afford, but it also shows sellers you are serious, qualified, and ready to purchase.
Keep in mind that using a local lender will likely give you an edge in a multiple-offer situation. A strong relationship between REALTORS® and the mortgage company is important to a successful transaction, and that relationship is much easier to maintain when the lender is local, reputable, and accessible.
Set your budget
To avoid overspending, be sure to set a firm budget before you start the house hunt.
Your home buying budget should include not only your monthly mortgage principal and interest, but also property taxes, homeowners insurance, homeowner association fees, etc. Ideally, that total should fall somewhere between 25%-35% of your income.
“In order to stay within budget, we’ll need to start the home search below your max price,” said South. “Homes are selling for as much as 10%-20% over listing, so you’ll want to leave yourself some room to be competitive.”
Write your best offer
When you do find that right house, you’ll not only need to present your strongest offer in terms of price, but you’ll also need to submit as clean an offer as possible.
To start, consider putting down a decent-sized earnest money deposit (EMD). This “good-faith money” — typically around 1%-3% of the sale price — tells a seller you’re serious about buying their home. The larger the deposit, the more appealing the offer.
Waiving certain contingencies can also help your offer stand out, but this should only be done after discussing the pros and cons with your REALTOR®. For instance, waiving either the inspection contingency, the appraisal contingency, or both can be an effective strategy, but it does come with some risks.
And remember, when a buyer takes possession of a property is sometimes just as important as price, financing, or contingencies. One of the biggest concerns for sellers in a low-inventory market is finding their next home. If you can give the gift of time in the form of a leaseback it may help you stand out.
“Some buyers are also adding an escalation clause to their offers,” said South. “This means that if the seller receives another offer that is higher than your initial bid, you are willing to increase your price to a higher, predetermined amount.”
You’ll need to act quickly
In June, the average days on market in the Greater Lansing area was just 11 days!
Demand is high and homes are being snapped up quickly, so be sure to stay in constant communication with your REALTOR®. If they call about a listing, you may need to drop whatever you are doing to get there. If you wait for a more convenient time, the property could be gone.
Listen to the professionals
These are complicated times, and it pays to have a professional working in your corner. An experienced REALTOR® will help set expectations, refer you to a reputable lender, provide access to the latest listings, help you craft an attractive offer, and negotiate on your behalf. A REALTOR® looks out for your best interests and helps to ensure you are making a wise, financial decision in a time when emotions can easily cloud judgement.
“My biggest advice for buyers today is to be patient,” said South. “Know that you may lose a few houses simply due to the competitive nature of the market. But ultimately, the right home will come along, and your best chance of winning is to have a professional guide you through the process.”
For a list of experienced, local agents visit the Greater Lansing Association of REALTORS® website at www.lansing-realestate.com.