With rates as low as they are, and with COVID causing everyone to reconsider their environment around them and where they live, making a move is top of mind for many people these days. Rates were already low pre-COVID, and real estate inventory was already tight. But now, with sellers not wanting strangers in their house, there is an added tightening to an already paltry housing inventory. According to the recent TARR Report, as of August 2020, inventory in Wake County was down 46% compared to August 2019.
What does that mean for you as a buyer? It means that there’s a high chance that you’ll find yourself in a multiple offer situation, possibly more than once. So you need to be ready to bring your A Game, especially if you are looking for property near Downtown Raleigh or in the Raleigh core, aka, Inside the Beltline. North Hills, Five Points, Cameron Village are all super hot, as are the markets in/near Downtown Durham and Chapel Hill. Walkable neighborhoods are still very much in demand.
This article will help you understand how to be a competitive buyer in today’s market.
Regardless of who you approach to be your lender (most people get a name from friends, or simply go to their bank, or go online to start), you should not only talk to them about what you can afford and what rates they can offer, but interview them to find out their typical time lines. Maybe they take too long to close. How many contracts have they closed on time? What are they seeing with appraisals? How are they handling the increased volume?
Now, let’s talk about the need to be pre-approved vs pre-qualified. While not required, being pre-approved can help you stand out to a seller as someone who is organized and motivated. To be pre-approved, you and your lender need to have already gone through all of the verification required. That can take a week or more these days depending on your financial situation. Lenders are swamped with refinances and their business volume has likely tripled or more. You need to allow time to get a response. If you are self employed, expect a MUCH different process this year. There’s a COVID questionnaire that lenders require to understand how your business income has been impacted.
It’s a lot of paperwork and back-and-forth. To do all of that in parallel while being under contract on a house could be really overwhelming. It’s already super stressful these days. Get as much of the financial stuff out the way in advance so that you can focus on your house when you find it.
It costs money to buy a house (new construction is different but does require a large deposit). This is in addition to the down payment and closing costs that you’ll discuss with your lender. Those are paid at closing. I’m talking about money to get the house under contract. Before you get to the closing table, there are out-of-pocket expenses that many first time homebuyers are not aware of:
And if the appraisal comes in lower than the purchase price that you negotiated, don’t expect a seller to lower the price. While every agent would love to be a hero and get you a lower price, the reality is that when a seller receives multiple offers, mostly all over asking price, they have zero motivation to negotiate a lower price due to appraisal. They would move on to the next buyer who would happily pay. So your agent, when you’re writing the offer, will pull comps and talk with you about what the value will likely be in an appraisal so that if you do decide to offer more than asking price, you can know generally how much you would be at risk if it doesn’t appraise. For example, if you offer $550k and it only appraises for $540k, you know that you’d have to bring another 10k cash to the table. Hopefully it goes without saying that all of this depends on how many offers there were, the price range of the house, results of an inspection, etc. But the risk does exist and is something to be aware of when writing an offer.
Even though there is risk out there with COVID, you can safely look at homes with your agent by following guidelines. Obviously you need to check the virtual tours first to make sure there are no dealbreaker items in the home, but you need to get out there. Unless you have the kind of personality where you know exactly what you want and an unlimited means of cash to make it happen, you need to have experienced which houses are getting multiple offers and have been in them. Your agent needs to have seen how you react to various features and you need to talk about what items you’re willing to sacrifice. Often the exact house you want does not exist and you need to work through what you’re going to let go of as criteria. Location? Size of closet? Kitchen condition? Age of home?
You shouldn’t be startled when an agent gives you a number for what you should pay for Due Diligence. If you’ve been out there and built a relationship with your agent, you’ll be able to better trust their advice so that you can win a bidding war.
Also related to getting out there is the communication with a significant other about what you want. People experience homes in different ways and by walking through them together, you can learn more about the other person. You need to be on the same page when it comes time to write an offer.
We’ve assumed that you will be using a Realtor to guide you through this process, but depending on where you are looking to buy, you might need to be proactive and build a larger team. If you are considering a renovation, you’ll want your architect and builder to join you on any showings. Your lender needs to be 100% on board with what you are planning to do. If you shift from a straight purchase to a purchase and renovation, your lender needs to know. If you shift from a single family home to a condo, your lender needs to know.
You need information to help you make good decisions. So make sure you have the right people on your team to give you the information you need. And not only that, be clear about what you need from them and how quickly. Just like with the lender comment above, time can be critical and the right home could pop up on a Thursday and you need to be able to jump.
Buying a home is still a good investment, but in a hot seller’s market, it’s not typically a straight transaction where you just see a house and write a contract. Maybe if you’re lucky that could be your experience. What’s more common is losing a few homes to bidding wars before finally being ready to write a winning offer. Following this advice should hopefully save you from that frustration. There’s so much money coming to this area. But maybe you eventually decide to just buy from a builder and avoid all the hot spots. Our goal is to help you navigate the market to help you find the right home.
Hopefully this article was helpful. For first time homebuyers, please don’t be discouraged. There are areas that might not be crazy hot, and some homes do sit on the market a while. Contact us today to start the process.