As of June 25, 2018, we’ve made some changes to the way our mortgage approvals work. You can read more about our Power Buyer ProcessTM.
If you’re planning on beginning your home search soon, you should know that the housing market is hot right now. How hot? Let’s see if we can quantify that with a couple of key statistics.
To begin with, if sales continue at the current rate, the new homes on the market today would all be gone in just over five months.
Supply is even tighter when it comes to existing homes. There are just over three and a half months of inventory there.
All of this means prices are rising, and the inventory that’s coming on the market isn’t there for long.
Home builders are more confident in the future of the industry than they’ve been in quite some time.
Unfortunately, the problem of low inventory isn’t being helped by the fact that builder confidence has yet to translate into enough housing starts to provide relief to an undersupplied market.
This leads to a number of questions if you’re looking to buy or sell your home – or maybe both – heading into the summer months. What can you expect out there, and most importantly, what can you do to set yourself up for a better chance of success?
We turned to Doug Gartley, an associate broker at Rocket Homes with 17 years of experience in real estate, for some expert advice.
Tips for Buyers
If you’re looking to get a new or new-to-you home this summer, the inventory is a little slimmer than at other times in history. It doesn’t mean you can’t get a home, but you need to be prepared and ready to compete. Of course, offering more money than the next guy coming through the door doesn’t hurt, but it goes beyond that.
In a competitive market, Gartley says sellers will be looking for offers that have as few hurdles to a potential sale as possible.
“One of the biggest things is making your offer as clean as possible as far as not having a lot of contingencies or being super creative in regards to how you write your offer,” he says.
The Cons of Contingencies
If you have multiple offers with similar price points, it may be to your advantage to remove the inspection contingency. Gartley cautions that you need to be careful about this if you’re a buyer. You want to know about any potential issues with the home before you move in, but it may be a viable option if you’ve had experience in the construction industry or bought homes in the past and know what to look for.
A less risky alternative would be to shorten the period of time you have in order to get an inspection. Instead of a typical 10-day holding period, you might promise the seller that you can have it done in five days.
While we’re on the subject of contingencies, there’s one more you might consider waiving in a competitive market: the appraisal contingency.
You have to be sure you want the house, but in a multiple-bid scenario, you do have the option of paying more than the house appraises for and bringing the difference between the mortgage and the purchase price to the closing table.
When we think of the upfront cost of buying a home, we often first think of the down payment, but Gartley says not to underestimate the power of a strong earnest money deposit. An earnest money deposit is a check given at the time the offer is accepted in order to compensate the seller for taking the property off the market while the mortgage process is completed.
“A general rule of thumb is to put down 3% – 5% of the purchase price to show the seller that you’re very serious as a buyer,” Gartley says.
It’s important to note that if you do have an appraisal or inspection contingency and the house doesn’t pass muster at any point, you can get this deposit back.
You can also sweeten your offer by saying that if there’s another bid above yours, you’re willing to go $500 above that up to a threshold that you set. The price might go from $150,000 to $154,000, but if it’s in your budget, it could help you get the house.
Finally, if a buyer is preapproved for $200,000 but looking at homes in the $125,000 range, sometimes they’ll have their preapproval letter printed to say that the purchase price for this particular house is all they can afford. Gartley recommends against making it look like a house is at the edge of your price range.
By showing that you’re approved for more, this signals to the seller that the deal has a higher likelihood of going through than someone who really is at the top end of their budget range.
Communication Is Key
One thing that’s important for your real estate agent not to overlook is the importance of properly presenting your offer to the listing agent. It’s one thing to send it over, but Gartley recommends that the buyer’s agent go a step further.
“When you take all this time and structure, the best possible offer you can and consult with your buyer’s agent, the buyer’s agents aren’t necessarily taking the time to deliver that offer,” he said. “They’ll send it over, but they don’t pick up the phone to call the listing agent to present the offer.”
Buying and selling a home is a big deal. It’s the biggest financial transaction many of us will ever participate in. Your agent should be as invested in this as you are and be able to present the strengths of your offer.
Tips for Sellers
It may be a seller’s market, but that doesn’t mean you can just put a “For Sale” sign in your yard and wait for the offers to roll in. Here are a few tips for those looking to move on from their current home.
The Price Is Right
With the market being in their favor, some sellers may think they can put any price on a property and expect it to sell. Gartley said expecting this can set sellers up for failure. Buyers have more information at their fingertips now than at any point in history, and you should assume they know what similar houses in the area are going for.
Instead, Gartley recommends pricing as accurately as possible to begin with. Having a price as close as possible to actual market value creates a sense of urgency among buyers and may entice those who are particularly qualified into a bidding war for your home.
So how does one know what the right price is? Here, you might be best served by relying on your agent.
“Working with a good seller’s agent, they’re going to be able to review comparables [similar properties] and give a good strategic recommendation on the listing price based on the seller’s motivation, goals and what they’re looking to do within a timeframe,” he said.
Pricing for market value also leaves less likelihood that the deal will fall through down the line due to a low appraisal.
We live in an age where people can take virtual tours of 40 different homes in the area on the Zillow and Trulia websites or apps without ever leaving their couch. Before they ever step foot in your home, they may have been through a time or two already because of the convenience the internet provides.
This poses an additional challenge for sellers because it means that the first impression is more important than ever. Gartley advises that it’s worth the time and expense to have professional photos taken.
“It’s critically important to get professional photos done, because the first showing no longer takes place when the buyers walk through,” he said. “It’s when they pull the listing online. You absolutely have to have your best foot forward when that house hits the market.”
You should make sure these photos are put up at the time the property is listed. You want to show off the total package.
Hit the Whole Market
Many listing agents may propose to you that they can hold your property off the market for about 10 days, but put a sign out front and hold open houses. They may say they want to gauge interest. The real purpose of this is to see if the agent can find the buyer on their own. They may try to sell this by saying you’ll save on commission. Gartley says to be careful of these types of arrangements.
They can be advantageous for the agent because they don’t have to split the commission, but by not putting it on the multiple listing service (MLS) right away, you’re missing out on having it be seen by the agents of all the other potential buyers out there. If someone would have had a higher bid, you could be leaving money on the table.
Buying and Selling at the Same Time
Are you looking to buy a new property while also selling your old one at the same time? This is challenging, but it can certainly be doable.
Can You Afford Two Mortgages?
If you’re looking to buy while also selling, it’s worth looking into whether you can afford two mortgages at once. It’s true that if you follow the right steps in this seller’s market, it’s quite possible to sell your home within a matter of days or weeks, but it’s important to plan for the possibility that you might hold onto it for a while if you have to.
Being able to pay on two mortgages at once prevents you from having to take the step of making your home purchase contingent on the sale of your previous home, but sometimes people have to do this, so let’s go over that next.
Sale-Contingent Purchases: Advantages and Disadvantages
By making your offer contingent on the sale of your previous home, you protect yourself from having to make multiple mortgage payments at any point. This could be a big advantage from a buyer’s perspective.
Let’s take a look at this from the seller’s perspective for a moment, though. If a seller has two similar offers, one sale contingent and one not, they’re more likely to go with the one that doesn’t require a sale because it’s one fewer impediment.
That said, if you must have a sale contingency, there are a couple of things you can do to make your offer a little stronger.
In the seller’s eyes, one key indicator of whether your offer is likely to go through might be where your house stands in the sales process.
“Your offer is going to be a little bit stronger if you already have an accepted offer on your home versus it not yet being on the market,” Gartley says. “If your home is on the market and it’s been on the market more than the average local days on the market, that’s not a good sign. The seller is going to see right through that.”
The other strategy you can employ is to insert a clause in your offer that gives you a certain amount of time to choose to waive the contingency on the sale of your previous home if another offer comes in. Usually, sellers will agree to give you a few days to make this decision.
Home Buying Wisdom
While buying in a tight market can be a unique challenge, Gartley offers one last piece of encouragement sprinkled with a little bit of the wisdom that 17 years of experience in the real estate industry can bring.
“Just be patient and diligent,” Gartley says. “Don’t give up. Yes, it’s frustrating and challenging. It will happen. Typically, we see inventory kind of pick back up a little bit and the frenzy that we see in the spring and early summer market kind of slows down around August.”
Some of us may have the keys in our hands tomorrow, while for others, it may take a little longer, but if you stay the course, the odds are good that it’ll work out in the end.
Are you looking to get started on your home shopping journey? Go ahead and get a preapproval online through Rocket Mortgage. If you’d prefer to get started over the phone, one of our Home Loan Experts would be happy to take your call at (800) 785-4788. Happy house hunting!
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