Many homebuyers are finding themselves in an unusual situation this spring: They have enough money and are preapproved for a mortgage, but can they actually secure a house?
The number of homes for sale in February fell for the 21st straight month compared with the previous year, with only a 3.8-month supply at the current sales pace, according to data from the National Association of Realtors. A six-month supply is considered a balanced market. The supply of homes for sale is even tighter at the lower price ranges.
That creates a major challenge for homebuyers, especially first-timers. If a prospective buyer isn’t careful, he could end up jumping at anything just to get a house, only to realize later that he bought a home that's not right for his family.
“I feel that a lot of my purpose in the search process is making sure they don’t buy the wrong house,” says Dawn Rae, broker-owner of Florida Buyers’ Advocate in St. Petersburg, Florida. “If you can’t trust the person who is guiding you, you could buy the wrong house.”
Rae, who is the president of the National Association of Exclusive Buyer Agents, says the advice of a good agent who represents your interests is especially important in today’s tight housing market.
Her first recommendation for prospective buyers is to do significant research before they view homes. That includes deciding what features they want, what they can reasonably expect to get for their budget and what neighborhoods are acceptable.
“The more prepared you are, the more enjoyable it will be – and you’ll end up getting a home you’ll enjoy,” says Connie Durnal, a Redfin agent in Dallas.
She advises her clients to get as far along in the mortgage process as they can and write a draft cover letter to the seller so they can prepare a purchase offer quickly. With those issues out of the way, they can focus on choosing the right home.
“By relieving all this pressure, they’re not all wound up. They’re not bounding all over the place,” Durnal says. “It really lets them focus on the home.”
Rather than worrying about the process, prepared buyers can concentrate on whether the house fits their needs: Is it the right neighborhood? Is it the right size? Does the layout work for their lifestyle? By honing in on these issues, buyers are less likely to make a mistake and more ready to move quickly when they find the right home.
“If they have studied the market ahead of time … they will be more confident when they’re there, and they do see something that matches their parameters,” Rae says.
The market is moving quickly, which requires quick decisions from buyers and often submission of an offer as soon as they see a house they want. “The best houses are selling in three to five days, with multiple offers and even bidding wars,” says Victor Quiroz, of Berkshire Hathaway HomeServices California Properties in Southern California. But that doesn’t mean would-be buyers should settle.
“There’s always more housing coming to market,” Quiroz says. “Understand there will be more next week.”
Here are eight ways to avoid buying the wrong house in a competitive market.
Work with a trusted agent. Using an agent can give buyers an edge because the agent has access to information from the multiple listing service that buyers won’t find online. An agent can also help prospective buyers prepare their strongest offer. Line up your agent at the beginning of your search. If the agent doesn’t want to help you discuss you options before you’re ready to buy, find another agent.
Know what neighborhood you want. Explore and drill down into neighborhoods before you start seriously looking at houses. If schools are important, know the boundaries of the districts you want. Test the commute time from locations you’re considering. Don’t just research online, but also visit and talk to neighbors. Once you’ve chosen the neighborhood, you can narrow the search to the specific house.
Know the market. Know what types and sizes of homes are common in your preferred neighborhoods. This will help you know, when you see a listing or tour a home, whether you can expect a similar home that meets more of your needs to come along later. You also want to know how fast homes are selling, whether they are going for over asking price and what the sale price per square foot is, though your agent can help you with the numbers.
Know what home features are important. If you have a son and a daughter, settling for a two-bedroom house when you need three bedrooms probably doesn’t make sense. Buyers never get everything on their wish list, but you need to know which features are essential for your happiness.
See as many houses as possible. Once you decide you’re interested in buying a home, start going to open houses, even if you don’t have an agent yet. Open houses are an easy way to see lots of homes and talk to agents about options without making a commitment.
Know your budget. No matter your housing budget, you always discover that the features you want cost a little more. Plus, you could encounter a situation where you have to offer above asking price. Set a maximum for what you’re willing to spend and stick with it.
Always get a professional home inspection. In most areas, you’ll be asked to sign a contract to buy the house “as is” with the right to inspect. That means the seller is unlikely to make repairs, but you can withdraw from the deal if you don’t like what the inspection reveals. Before buying a home, you want to know the condition of the roof, ceiling, plumbing, electrical system and heating and air conditioning system. Knowing about foundation problems, water damage or termites is also important. You can typically use the inspection contingency to withdraw from the contract even if you don’t find major problems, giving you a few days to make sure you’re happy with the home once you’ve signed the contract.
Understand you may lose a few. Most first-time home buyers aren’t ready to move quickly the first time they see a home they like – or maybe even the second time. Even if they make an offer, they may not get the home. “It’s a learning process,” Rae says. “They see the home. They feel like they can’t move yet. It disappears.” Losing out on a few homes also may help you know the right one when you see it.
Teresa Mears | May 3, 2019
Conventional wisdom says 20%, but you can buy your first home with much less down.