10 Tips for Buying a Home in a Hot Housing Market
A month into the second half of 2021 and the hot housing market is showing no signs of cooling down anytime soon. This is great news for sellers. A lot of buyers, however, are feeling exhausted and frustrated.
Buying in a hot market takes some thoughtful preparation, flexibility, and patience. Acting in desperation can lead homebuyers to be impulsive and pay too much or settle for something they really don’t want. If you are feeling overwhelmed trying to find a home in the current climate, try to remain calm and follow our 10 tips.
What is a Hot Housing Market?
What are the indicators of a hot housing market, also known as a seller’s market? The following trends become obvious:
- There are more interested buyers than there are homes for sale.
- Asking prices are higher than normal.
- Offers are coming in quickly.
- Competition is fierce, with multiple offers and bidding wars.
- Final sales prices are higher than asking prices (sometimes by a lot).
The real estate industry tracks several statistics, one being the number of months of unsold inventory. A 6 month supply of houses currently on the market is considered a balanced market. According to the National Association of Realtors, there was only a 2.1 month supply in March 2021.
In a buyer’s market, the opposite is true. There are plenty of houses for sale. A buyer can take their time, pick and choose, and make requests or demands. Sellers are eager to accommodate them to make a sale.
Now, however, buyers are experiencing major FOMO (fear of missing out) as their best offers are rejected. Their search might take them further away from their target neighborhood, and higher in price than they expected to pay.
1. Study Your Local Market
Our first bit of advice is to look at your region. While the market is hot all across America, individual areas vary. One suburb might see prices going through the roof, while it might still be possible to find something affordable in another.
Get a sense of what types of homes are hitting the market and how quickly they are selling. Check out the prices of recently sold properties and how they compare with the house’s previous sales. This will give you some guidance as to how much you might ultimately have to pay and how quickly you will need to act when you find something you want. It could rule out some towns or types of homes, while bringing to your attention some that you hadn’t considered before.
2. Think Hard About Your Must-Haves
Watch any real estate show on TV and you’ll see folks ruling out homes because of things like cabinet color, carpet vs. hardwood, or other things that are easy and not super expensive to change. Buyers in the current market need to take a long, hard look at their wish list and separate the “needs” from the “wants”.
Granted, not everything is superficial or changeable. Everyone will have “deal-breakers” on their lists. For example, a family might insist that each child has their own room. They might also want an extra bedroom to use as an office or for guests. Or, they might want all of the bedrooms to be on one floor. But do they really need either of those things? Maybe, maybe not. Once you understand what is a true deal-breaker for your family, and what isn’t, your list of potential new homes could instantly expand.
3. Line Up Your Financing
It is always good to shop for lenders and line up your financing before you get serious about buying a house. In a market this hot, it is not enough for buyers to get pre-qualified. They need to be pre-approved by a lender. Pre-approval is a more extensive look at a buyer’s financial situation. Not only will this show the price range they can afford, having a pre-approval letter shows sellers that they are really serious.
4. Find the Right Buyer’s Agent
Once buyers have an idea of what they need and how much they can spend, they need a great buyer’s agent. A hot housing market is no time to try to find a house without one. They will have the inside track on what’s for sale right now as well as what’s about to become available. It’s best to opt for an experienced realtor like those at our offices here at Berkshire Hathaway HomeServices Select Properties. They know the St. Louis and Metro East Illinois regions like no one else.
5. Save More Money Than You Think You’ll Need
With prices climbing well past the asking price, buyers may need more than they realized to get into a house that checks all the boxes. First, it’s important not to start the search at the top of the budget. Leave some room for negotiating.
Next, remember that lenders will not want to loan more than the appraisal value of a house. If a buyer ends up paying more, they’ll have to make up that difference themselves. The more that can be put down on a home, the less likely there will be an “appraisal gap” to cover.
Finally, some buyers, especially if they are buying their first home, forget about all of the other costs associated with the sale. Closing costs, moving costs, repairs, and replacing appliances, flooring, or window treatments all add up.
6. Simplify, But Don’t Skip Inspections
Buyers who have had a few offers rejected can feel desperation creeping in, especially if they’ve already got an offer on their current home. Some resort to waiving inspections. This is a gamble that may not pay off. Finding that a home is a fixer-upper is one thing. Discovering it needs a new roof, has a crumbling foundation, or is overrun by mold, or something else that will add tens of thousands of dollars onto the final cost is another.
A much wiser option is to limit the contingencies on an offer. For example, only ask for fixes for things that will cost more than a certain dollar amount. Or perhaps be willing to overlook anything besides the roof, foundation, and termite inspection. The budget will still need to stretch to fix flaws, but the most expensive issues won’t be a problem.
7. Offer Flexibility
Offering to be flexible in other ways can help sweeten the deal too. If a buyer has the ability to do a super fast closing that might be welcomed. Or offering to “rent back” the house so the seller can stay put until they find their own new home might be an option. Any gesture that signals the willingness of the buyer to work with the seller could make their offer preferable to all the rest.
8. Be Ready to Jump
A hot housing market is not for the wishy-washy or indecisive. Taking a day or two to think about whether or not to make an offer might not be possible. This is why it is so important to do the research and lay the groundwork first by having the financing in order and being clear about the must-haves. When something that meets the buyer’s needs appears, they can jump on it with a strong offer right away.
9. Stick to Your Guns
As time drags on, it’s easy for a buyer to get discouraged, but it is really important to know when—and when not—to compromise. Can you really give up an extra bathroom or bedroom just to get into that house? Is the tiny one car garage going to cut it? How much (or how little) work and extra money you are willing and able to put into it. Everyone has their own threshold of what is acceptable. If you must move that line in the sand, be sure it is for the right reasons.
And be very careful about getting into a bidding war. Paying too much to get into a house can have short- and long-term effects on finances. Buyers sometimes end up having to sell the house for a loss if they can’t keep up with the payments.
10. Review and Repeat
If an offer is rejected, the buyer should think about what happened and why they were knocked out of the running. Were they outbid? Did they have unrealistic contingencies? Should they consider a different neighborhood or price range? Talk to the real estate agent and pick their brain. A review of the situation can serve as advice for the next house they make an offer on.
As real estate agents, we know there is a great home out there for everyone. And we believe we can help you find it, as long as you are prepared, flexible, and patient.
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