(NEXSTAR) – With inventory at record lows, homes in nearly every corner of the country are going for big bucks. It’s good news for sellers, but for buyers, not so much.
“In 99% of all MSAs (metropolitan statistical areas) … it’s unprecedented,” Dr. Jessica Lautz, vice president of demographics and behavioral insights at the National Association of Realtors (NAR), said of the demand for available real estate. “It’s not just your top tech cities anymore, it’s really everywhere.”
Low inventory also leads to fierce competition. It’s not uncommon for homes to fetch multiple offers at above the asking price — and go under contract soon after.
So what’s a buyer to do? Experts urge patience, above all else. “It may take a number of offers before a buyer has an offer accepted and a contract,” according to Lautz.
That said, there are three major steps a buyer can take to give themselves an edge, and it all starts before their dream house ever hits the market.
You should be pre-approved.
Are you already working with a real estate agent? Have you been pre-approved for a loan? Do you know exactly what features you’d like in a new house, and if so, have you looked at comparable homes (in the desired neighborhood) to see what they’ve sold for? If not, you may be setting yourself up for failure.
“When you’re competing against other people for scarce resources like a house, it’s not necessarily going to be a battle of who has the most money. It’s who presents the highest risk of failure,” says John Manning, the owner and managing broker of Re/Max On Market in Seattle.
To minimize risk, Manning advises buyers to seek pre-approval from a bank that specializes in home mortgages, preferably with a loan officer who will run through all possible options before an offer is placed. “A great lender will make sure the file is complete, they’ll run worst-case scenarios, or if the interest rate goes up a quarter of a percentage point,” Manning says.
That way, when the right house comes along, the buyer can confidently present themselves as a qualified candidate.
“Over years of doing this, I’m able to tell who has been doing their homework,” says Manning.
You need to understand the market.
“We recommend that buyers start their search earlier than they think, in in-demand markets,” says Scott Oyler, of Coldwell Banker Realty in Cincinnati. “It is such a competitive environment that you have to act fast … It’s a good idea to see a few homes ahead of time to educate yourself on the market, and to be able to act confidently and swiftly when you find “the one.”
A recent survey conducted by the National Association of Realtors indicates that buyers are increasingly working with real estate agents to help navigate the market (88% as of Nov. 2020, compared to 69% in 2001). But you can’t choose just any agent. Experts agree it needs to be someone with intimate knowledge of the desired area.
“Work with an experienced expert. Someone who can negotiate a solid market, and make sure yours is considered,” says Lautz. “They may also help you look to areas that you may have overlooked, perhaps point out a diamond in the rough.”
Some might even go the extra mile to make sure clients aren’t missing out on a potential dream home.
“We have to find creative solutions for our buyers,” says Diana Matichyn, an agent with Coldwell Banker Realty in Arlington Heights, Illinois. “I look for off-market opportunities. You will find me knocking on doors, asking folks if they are interested in selling, sending letters to homeowners trying to find that dream home for buyers.”
You have to know when to step back.
Having a strong understanding of the market will also help buyers get a sense of the price that buyers should — and shouldn’t — be paying for their dream home.
“A lot of people know what they can afford to buy, but they don’t necessarily know the value of what they’re about to purchase,” says Manning.
For example, during a bidding war, a buyer might make an offer above the asking price — and even try to remove risk from the seller — sometimes by forgoing an inspection.
But, “in multiple offers situations, you don’t always have to pay extra to win, sometimes you just need to find out what’s important to sellers, and meet those conditions,” says Matichyn. “One thing you should not do [is] forgo the home inspection contingency!”
In some cases, however, it may be appropriate, or even in the buyer’s best interest, to think about putting in an offer above asking price.
“It depends very particularly on that home, and on that neighborhood,” says Lautz. “In some cases, the home may be priced as such that it is actually below [comparable homes] that sold within the last few months.”
Those willing to put in an offer above asking price should also consider how they plan to use the home. Is it an investment property or a flip? Or is it a long-term home? If it’s the latter, the extra money likely won’t matter much over the course of the mortgage, especially if interest rates remain low.
“You could be pretty sure that in 20 years’ time, it’s highly unlikely you’ll be losing money if this is your primary home,” Manning says.
Whether or not you place a high offer, however, is a “deeply personal choice,” Manning says. The most important thing, he says, is to know when to stop bidding.
“Don’t get auction fever,” he says. “The goal is not to win the house at all costs; the goal is to win on your terms.”