In this red-hot real estate market, it’s tough for buyers to land a deal.
Supply is low, which is pushing prices higher. The median price of an existing home sold in March was $329,100. That’s a 17.2% increase from March 2020.
Yet there is some good news. New listings were up for the second week in a row, increasing 40% over last year, which is right when the pandemic hit, according to Realtor.com.
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“Buyers who are currently struggling to find a home are likely to see improvement in the number of choices available to them as more sellers list for the spring buying season,” said Realtor.com chief economist Danielle Hale, in a statement.
That said, the market is still very tight.
“I have been in the business for more than 30 years and I have never seen a market that has been this hot,” said Glenn Brunker, president of Ally Home, which provides mortgage services and products.
He recommends potential buyers take a pause and do a little soul searching.
“Take a look at your income stream, your employers, the location you are considering buying a home and make sure that the stability of your personal situation is one that warrants homeownership,” Brunker said.
If you are ready to buy, here’s advice from experts on how to navigate the market right now.
Figure out your number
The first thing financial advisor Jacqueline Cooper asks clients is what they are paying in rent and if that is okay for them.
“Come up with a number first,” said Cooper, founder, president and CEO of Financial Education Associates in Dorchester, Massachusetts. “What you can afford is going to guide not just your principal and interest payments, but taxes and insurance payments.”
Review your existing expenses and debt. There will also be additional costs to consider, like sewer and trash, possible homeowner association fees and a likely boost in utility costs.
Get a good real estate agent
Part of your due diligence includes finding a real estate agent who is experienced in both buying and selling homes. They should also have a strong knowledge of the local community and relationships with other realtors in the area.
“You want them to be able to negotiate hard and know what makes a competitive offer in that neighborhood,” said Lexie Holbert, a housing and lifestyle expert for Realtor.com.
Do your homework
Start looking at listings online, including doing virtual tours, even if you aren’t quite ready to begin the process yet. It will give you an idea of neighborhoods you like that are within your budget, Holbert suggests.
Setting up alerts from real estate websites will also let you know when new homes hit the market in those areas.
As you see homes you like, you can figure out your monthly payment based on the down payment and cost of the house by using a mortgage calculator, which are offered by lenders.
A good knowledge base will help you make an educated decision in a short period of time, which is crucial when homes aren’t sitting long on the market.
Get pre-approved for a mortgage
A mortgage pre-approval will give you a sense of the amount you are qualified to borrow, what your interest rate will likely be and the amount of your monthly mortgage payment.
However, just because you are approved for a certain amount doesn’t mean you should spend that much money.
“The only person responsible for your budget is you,” Holbert said.
Getting an edge over the competition
To win over a seller, try to form a relationship with them. That can range from writing a heartfelt letter or having your real estate agent paint a positive picture of you as a buyer.
“If you can connect on an emotional level with the seller through the realtor or as an individual, it does make a difference,” Brunker said.
First-time homebuyers may have an advantage if they are not depending on the sale of a previous home to buy the new one and have flexibility on when they can move in. One option is to rent the home back to the seller while they look for their new home.
While some buyers are waiving inspections, Brunker doesn’t recommend that tactic since an unexpected repair can put you in a financial bind.
If you have the ability to handle a larger down payment, you could waive the appraisal contingency, which allows buyers to back out if the home is appraised for less than the purchase price. Your mortgage amount will decrease and you’ll have to make up the difference.
“Removing contingencies is not something that everyone should do,” Holbert advised.
“Talk to your agent about the specific situation and really make sure you understand the risk.”
In the end, the winning bid usually offers the most money or all cash.
Just don’t let a bidding war lead you to offer more than you can afford.
“It doesn’t matter what the highest bid is and whether you can beat that, if you don’t have the money,” Cooper said.
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