Winning as a Buyer in Today's Seller's Market
Today's real estate market is intense, especially in and around Grand Rapids. If you or anyone you know has attempted to buy or sell a home they can tell you. But the hardest part? The buying side of it. With inventory at all-time lows, interest rates hanging well below average, and new buyers flooding the market, a very competitive situation unfolds. Some homes are selling in less than a week, with multiple offers, and for more than list price!! So, how does a buyer win in this market? Let's take a look at how to win the home of your dreams in this tight market!
The Realtor
I'm not exaggerating when I say that not all Realtors are created equal. Even though homes are going for more than list price, keep a couple things in mind.
- The home still has to appraise for the price you are offering, if you are financing it. Throwing out a huge amount of money may not land the home. Regardless of how many buyers and how high the offers are, an appraiser still has to look at hard and fast statistics about the market and the sold properties in the area. This sometimes means that appraisals will be short of the purchase price. Creating a whole new set of challenges.
- It's not always bottom-line dollar value that wins out. Sometimes it is, but a good agent can tell you when it isn't. Instead of just calling the listing to tell them I am sending an offer, I call and ask them a few questions. The most important one is: "What else besides price is important to your sellers?" In some instances the time of possession, closing date, status of an assessment on the property, and even the type of financing can be a big deal to a seller. Just recently I was able to get a buyer under contract in a multiple-offer situation while only being the THIRD highest offer! How? Because I talked with the listing agent and my buyer was able to appease the sellers' extended possession and closing requirements! Don't let another agent tell you that it's all about price, because it isn't.
Agents also need to be very proactive to know about homes coming on the market before they actually hit the market. They also need to be very reactive and have enough flexibility in their schedule to accommodate short notice showings if needed. Along with being proactive, they also need to be flexible and reactive as well. One of my personal goals with my buyer clients is to get them into the home within 24 hours of them requesting a showing. Even if I can't make it for some reason, I have enough agents I partner with at City2Shore that someone will be able to get my clients into the property. I don't want to risk my client missing the home of their dreams simply because schedules are conflicting.
The Lender
Just as with Realtors, loan officers are not created equal as well. There are many things that can and will influence who a buyer uses for a loan officer, but one major thing that goes unnoticed with buyers and even some buyers' agents, is the fact that there is a difference between a "pre-qualification" and a "pre-approval." What's the difference you ask?
- A pre-qualification is when a lender simply takes what someone "says" their income is, they may review their credit report, do some quick math to determine a debt-to-income ratio, and if it's less than the requirement, boom you're pre-qualified! Now that sounds nice, but in the real world, would you take someones word (literally) for a transaction of this magnitude? Maybe if someone says they'll pay you back for lunch, but how about if they say they'll pay you back $200,000 for a house? I don't know about you, but I probably wouldn't.
- A pre-approval is much more in depth. This means the lender has verified all the financial documents, assets, employment, etc and has gone over the credit report and has approved the buyer based on the actual, factual information about the buyer. This is a much more thorough and accurate way to portray a buyer.
In a multiple-offer situation if you are looking at two very similar offers and one is accompanied by a "pre-qual" letter and the other has a "pre-approval" letter, which one would you take? Exactly. In order to be competitive, you need to have absolutely, rock-solid financing. Too many times in this market, lenders are quick to give out pre-qual letters and the loan doesn't close and homes come back on the market.
Where should I start first? Loan Officer or Lender?
Also a good question. You are about to make what can be the largest purchase of your life. Now, if you talk to "everyone" they are going to have an opinion on who you should go with, but when "everyone" bought their home years ago, the market was different that it is now. And "everyone" may not have your best interests in mind. Find a Realtor that you are comfortable with, someone that communicates and someone that is willing to go to bat for you, not just someone that is looking to make a quick commission. Once you have your Realtor sorted out, ask them who they would recommend for a lender. They will have rapport with a few loan officers in the area and can typically get you connected with someone that fits your unique scenario. Trust your agent. Full-time real estate agents, the true professionals, know how to work the market and get the most out of it. Working with a loan officer that works well with your agent will bode well for you in the long run. Communication and trust will be on your side.
The Offer
Having your agent staying vigilant for the right house for you, and your loan officer on standby to get you a detailed pre-approval letter, will prove valuable when the time is right to get that offer in. I say again, this is another time that you need to really trust your agent. He or she will advise you on how you need to write the offer. Should we offer lower? Higher? Shorten inspection periods? Appraisal guarantee? Should I give them the time of possession they are asking for after close? If you have a great agent, they should have already talked with the listing agent about what is important to the sellers. They should have already looked at some comps in the area to determine where market value is. And if you are to offer more than asking, how much more? I know offering more seems odd or even scary, keep in mind, $5000 more on an offer is really only going to equate to about $20-$25 more per month on your mortgage. Trusting your agent to guide you to write the most competitive offer you can is vital. I have had too many clients, both young and old, that have missed out on homes they were in love with, by very small margins, because they didn't offer where it was suggested. When you miss out on your dream home by $1000 or $2000, thats a tough pill to swallow.
Inspections
This market is not your father's or grandfather's market. What does that mean? That means you can't ask for every single thing that shows up on the inspection report to be fixed. Your agent wants you to be comfortable moving forward with the purchase, but at the same time, wants you to get the house want. A leaking faucet, an outlet that doesn't work, even a garbage disposal not working, are not things that are detrimental to the overall function of the house. And really, if you start asking for those little items, or what I call "common homeowner repairs" you may lose the house. Because, that seller knows that he can find another buyer quickly that may not be concerned with those smaller items. There are still 4 major areas that I focus in on during inspections: roof, foundation, mechanical/HVAC, and major plumbing and electrical. These are still items that virtually all buyers will want to have addressed before close. No one, regardless of how much they love the house, will want to move into house with a crumbling foundation, or a furnace on it's last leg. These are still items that can be negotiated to be repaired or at least negotiate a warranty to cover you should they need repair in the future. Again, my goal is to make sure you are comfortable with the home, but also not lose you the home over a couple of fixes that are less than $100.
Even in a sellers market, there is a lot of value to be had as a buyer. And now is definitely the time! Interest rates and home prices are going to continue to increase, so buying in now means you can beat the high interest rates AND your home will continue to appreciate in value! But the biggest thing you should takeaway from this is to trust your agent and your lender to make sure you are in the best position possible when the right house comes up. Be ready, and be ready to move quickly, and your dream home can become a reality!
