(NEXSTAR) – With inventory at record highs, homes in almost every corner of the country are costing a lot of money. This is good news for sellers, but not so much for buyers.
“In 99% of all MSAs (Metropolitan Statistical Areas)… this is unprecedented,” said Dr Jessica Lautz, vice president of demography and behavioral insights at the National Association of Realtors (NAR), about demand for available real estate. “It’s not just your main tech cities anymore, it’s really everywhere. “
Low inventory also leads to fierce competition. It’s not uncommon for homes to get multiple bids above the asking price – and contract soon after.
So what should a buyer do? Above all, experts ask for patience. “It can take a number of offers before a buyer has an accepted offer and a contract,” according to Lautz.
With that said, there are three main steps a buyer can take to give themselves an edge, and it all starts before their dream home hits the market.
You should be pre-approved.
Do you already work with a real estate agent? Have you been pre-approved for a loan? Do you know exactly what features you would want in a new home, and if so, have you looked at comparable homes (in the desired neighborhood) to see what price they sold for? If not, you risk setting yourself up for failure.
“When you’re competing with other people for scarce resources like a house, it won’t necessarily be a battle over who has the most money. This is the one with the highest risk of failure, ”says John Manning, owner and manager of Re / Max On Market in Seattle.
To minimize risk, Manning advises buyers to seek prior approval from a bank specializing in home loans, preferably with a loan officer who will review all possible options before an offer is placed. “A good lender will make sure that the file is complete, that it will run through a worst-case scenario or if the interest rate increases by a quarter of a percentage point,” says Manning.
That way, when the right home shows up, the buyer can confidently present themselves as a qualified candidate.
“Over the years, I’ve been able to tell who did their homework,” says Manning.
You have to understand the market.
“We recommend that buyers start their research earlier than they think, in demand markets,” says Scott Oyler of Coldwell Banker Realty in Cincinnati. “It’s such a competitive environment that you have to act fast… It’s a good idea to see a few houses ahead of time to learn about the market and to be able to act confidently and quickly when you find ‘the right one’ .
A recent survey by the National Association of Realtors indicates that buyers are increasingly working with real estate agents to help them navigate the market (88% in November 2020, up from 69% in 2001). But you can’t just choose just any agent. Experts agree that it must be someone with intimate knowledge of the desired field.
“Work with an experienced expert. Someone who can negotiate a strong market and make sure yours is taken into account, ”says Lautz. “They can also help you find areas that you may have overlooked, possibly reporting a diamond in the rough.”
Some might even go the extra mile to make sure clients don’t miss out on a potential dream home.
“We need to find creative solutions for our buyers,” says Diana Matichyn, agent at Coldwell Banker Realty in Arlington Heights, Illinois. “I am looking for opportunities outside the market. You will find me knocking on doors, asking people if they are interested in selling, sending letters to homeowners trying to find their dream home for buyers.
You have to know how to take a step back.
Having a solid understanding of the market will also help buyers get a feel for the price buyers should – and shouldn’t – pay for their dream home.
“A lot of people know what they can afford to buy, but they don’t necessarily know the value of what they’re about to buy,” says Manning.
For example, in a bidding war, a buyer may bid more than the asking price – and even try to eliminate the seller’s risk – sometimes by forgoing an inspection.
But, “In multiple bidding situations, you don’t always have to pay extra to win, sometimes you just need to find out what’s important to sellers and meet those conditions,” says Matichyn. “One thing you shouldn’t be doing [is] forgo the possibility of a home inspection!
In some cases, however, it may be appropriate, or even in the buyer’s best interest, to consider bidding above the asking price.
“It really depends on this house, and this neighborhood,” Lautz explains. “In some cases the price of the house may be such that it is in fact less than [comparable homes] which has sold in the last few months.
Those who are willing to bid above the asking price should also think about how they plan to use the house. Is it an investment property or a flip? Or is it a long term home? If the latter is the case, the extra money probably won’t matter much over the course of the mortgage, especially if interest rates stay low.
“You can be pretty sure that in 20 years you are very unlikely to lose money if this is your primary residence,” says Manning.
Whether or not you place a high bid, however, is a “deeply personal choice,” says Manning. The most important thing, he says, is knowing when to stop bidding.
“Don’t catch auction fever,” he says. “The goal is not to win the house at all costs; the goal is to win on your terms.