The rules on how to buy a house have changed, folks—so if you're serious about becoming a proud homeowner in the near future, you'll want to read this first!
So what's changed the most in the traditional home-buying process? For starters, prospective buyers should brace themselves for steep prices and stiff competition. Data on realtor.com® show that the nationwide median home price has pushed above $250,000 for the first time ever, 8% higher than a year ago. Plus, total inventory remains much lower than it was a year ago, falling well short of buyer demand. The result? Despite rising home prices, properties are “flying off the market,” says Linda Sanderfoot, a real estate agent with Coldwell Banker in Neenah, WI.
Altogether, “it’s a hot seller’s market,” says Seth Lejeune, a real estate agent with Berkshire Hathaway in Collegeville, PA. While it's good news for sellers, buyers will need to take some extra measures to compete with other house hunters.
To nail a perfect home in today’s housing market, follow these five new rules.
Rule No. 1: Prepare for a marathon house hunt
With today’s low housing inventory and strong buyer demand, it might take you three to six months to buy a house—and maybe even up to a year in some of the country's tightest markets. Prepare accordingly.
You’re more likely to encounter a multiple-offer situation today than in years past, says Sanderfoot, vastly complicating many negotiations. So don't presume you'll be moving any time soon. If you do have a fast-approaching deadline for moving, you'd better get started on your home search. Like, now.
Rule No. 2: Secure financing before you start shopping
Gone are the days when you'd waltz into home showings without securing your financing first. If you need a mortgage to buy a home, you'll want to get pre-approved for a home loan before you set foot in a home.
The reason: Without a lender's pre-approval letter in hand, buyers will have a hard time getting sellers to take them seriously. Your offer, though sincere, could easily fall through for lack of funds. We told you it's a competitive market, right?
To survey your mortgage options, meet with at least three lenders—which could be banks, credit unions, mortgage brokers, or any combination thereof (you can get recommendations from your real estate agent). You’ll want to get a good-faith estimate, which breaks down the mortgage’s terms, including the interest rate and fees, in order to make an apples-to-apples comparison for the best deal. Here's more on how to shop for a mortgage.
Rule No. 3: Don’t lowball your offer
Bargain hunters, beware: If you’re making an offer on a home that’s priced to sell—meaning it’s listed at, or slightly above, fair market value—“you should present your best offer right out of the gate,” says Peggy Yee, supervising broker at Frankly Realtors in Vienna, VA.
In other words, you need to wrap your head around the idea that you’re more than likely going to be offering full list price. Although that can be tough for bargain hunters, “it’s the reality of many markets,” says Yee.
All that said, real estate markets vary by area, so look to your agent for advice on how much to offer. You can also check particular neighborhoods on realtor.com/local to get a base line for median home prices and more.
How long a house has been on the market can make a difference, too. If a home has been listed for more than 30 days, that might mean it's overpriced—and that means you might have a little room to negotiate on price.
Rule No. 4: Curb the contingencies
When buyers make an offer, they can tack on contingencies—terms that must be satisfied before a deal goes through. For instance, you might require that the place pass a home inspection to ensure that it doesn't need tons of repairs. If you’re getting a mortgage, your lender will require you to include an appraisal contingency where an appraiser makes sure the house is worth what you're paying.
All in all, contingencies protect buyers, but sellers don't always like them because they insert many "what ifs" into the deal, which might mean it falls through.
Since this is a seller's market, buyers can stand out by attaching fewer contingencies to the deal. Not the biggies, of course, but ones that don't really matter to you. For instance, you might want to consider letting go of a lead-based paint inspection since you can clean up this problem yourself. Or, many buyers may include a contingency that they have to sell their own home before the deal goes through; consider waiving that if you can.
Rule No. 5: Move fast
There’s no time to waste. In many cases, “a seller will list their house on a Friday, do a couple open houses over the weekend, and then review all offers on Monday,” says Yee. That could mean you have just a few days during which to view the property, confer with your agent, and submit an offer.
Given the time crunch, Lejeune says he asks buyers a simple question during his initial consultation. “I’ll ask, ‘If I show you the perfect house today, at a price that you can afford, are you ready to make a full-price offer right now?’ That question gives me a good barometer of how ready you are to buy a home.”
So if you’re serious about buying a house, you need to be ready to pounce.