All signs so far show a market frenzy this spring, as sellers traditionally favor springtime for listing homes, with this season as an optimal time to sell in 2022. Let’s delve into how buyers can best navigate this red-hot real estate season.
Understand that you’re entering a busy buying time
As the spring homebuying season got off to an early start this year, it’s well underway. Rising mortgage rates have prompted more homebuyers to hit the market in hopes they’ll lock in a good rate before rates go any higher. Though you would do well to remember that it’s no time to panic; these rises are from historical lows and aren’t expected to increase dramatically. Some perspective — and some deep breaths — will serve you well during the spring buying season.
Seek Opportunities Amid Challenges
Best not to candy-coat this one: the spring homebuying season does present some significant challenges for buyers. Both mortgage rates and home prices are on the rise, while the U.S. housing inventory is at a near-record low. According to the National Association of Realtors, as we headed into Spring 2022, inventory was down over 15% from the year prior. Yet home buyers seem undaunted, eager to purchase homes this spring despite the challenges they’ll have to navigate. And you shouldn’t be daunted either. That perfect home, and the financing for it, are out there.
Strategize for a Seller’s Market
It’s a fact: conditions are favoring sellers in today’s real estate market. So, the wise homebuyer should shift their tactics accordingly and follow a few of these tips:
- Don’t Fall for a Deferred Showing. Sellers often use this tactic to create a false sense of a demand for a home. An agent will list the home in the Multiple Listing Service but defer showings for about a week, with an open-house time on one day, usually Saturday or Sunday. It’s to create a busy open house and give the appearance that there’s lots of competition.
- Embrace Flexibility. To land your dream home, you may have to be more flexible than you would otherwise normally be. This may mean being open to changing your move-in date and keeping any contingencies you have in your offer to a bare minimum — just the basics, such as an inspection or an appraisal if required by your lender.
- Do Your Online Homework. For lots of homebuyers, visiting open houses can turn into something of a pastime, enjoyable strolls envisioning their lives in new homes.If you’re serious about finding your next property, each in-person visit must count, so thoroughly review every listing online and narrow down the list of those you’ll visit to just serious contenders.
- Adjust Your Budget Down. First, get comfortable with a simple fact: most homes sell for more than their list prices in the current market. How much more? That varies, but it is common for homes to sell for between $50,000 and $100,000 over listing prices. You should shop accordingly. For example, if you get pre-approved for a $400,000 mortgage, shopping in the $300,000 range would be wise. Having a higher pre-approval amount will give you a competitive edge in bidding and ensure you don’t go over your budget.
Prepare for a Bidding War
Yes, the prospect sounds unpleasant, as nobody wants to enter a bidding war, but chances are fairly good you’ll find yourself in one. Last spring, the bidding wars hit a fever pitch, with over 74% of offers on homes meeting with competition. Here are some tips to ready yourself for a bidding war:
- Loan Pre-Approval. In today’s searing-hot housing market, the buyer who has a mortgage pre-approval letter in hand, has the clear advantage. It’s the next-best-thing to offering all-cash — and on equal footing in some cases — as having a pre-approved mortgage always makes an offer more attractive to a seller compared to that of a potential buyer without financing in place.
- Have Your Financing Team Ready. Be prepared to hit the ground running when you find the perfect home by already being established with your City Lending loan originator. It is helpful to also know who you plan to use for your homeowners insurance, home inspection, title services, and loan closing.
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Consider an Escalation Clause. First-time homebuyers may assume that in a bidding war, competing bids get increasingly higher in a back-and-forth. But many sellers ask for a buyer’s highest bid at the onset. However, this bid can include an escalation clause, an addendum telling the seller that you’ll go higher if there’s an offer that’s higher than yours, usually with a maximum amount specified.
- Offer an Appraisal Gap Guarantee. You get an appraisal gap when a home gets appraised for less than an offer. Which is a problem; lenders don’t like to loan more than a home is worth. To guard against this potential issue, you can offer appraisal gap coverage, telling the seller that you can make up the difference with a higher down payment, offering the seller peace of mind and upping your chances you’ll come out on top in a bidding war.
- Write a Personal Letter. To distinguish yourself from other bidders, you might want to include a compelling personal note with your offer. Don’t overdo it — short and sweet is best — but if you can convey a heartfelt reason you are the right person for this home, it might be the small push that swings the deal your way. Yes, a real estate sale is a financial transaction, but it’s also a personal one. Many sellers feel emotional about moving on from a home they may have lived in for several years – knowing it is going to someone who feels a special connection to the property can make a big difference.
Just as days get longer, flowers bloom, and woodland creatures awake from hibernation, spring means a busy homebuying season. And it’s the perfect season to partner with City Lending and its suite of loan programs to fit the needs of every borrower.
