The housing market is hotter than ever with demand outpacing supply in most of the country. The median existing home sale price increased by a record-breaking 17.2% to an all-time high of $329,100 in March 2021, according to the National Association of Realtors. In nearly every state at least 20% of homes are selling for more than list price. And in many states, nearly half or more sell for above the asking price.
That’s great news if you want to sell. But if you’re looking to buy, the current market presents some challenges. Here’s some information about the trends we’re seeing, which we hope will help you navigate your home-buying journey. We’re here to help, so don’t hesitate to reach out if you’d like to discuss your current situation and establish a sound direction for your financial future.
Bidding wars can get competitive. In February 2021, there were four offers for every home sold, according to the National Association of Realtors. So, you should be prepared to keep looking if your offer isn’t accepted. On the plus side, there seems to be some relief in sight for homebuyers. Nearly 70% of the economists and real estate experts Zillow interviewed for its Q1 2021 Zillow Home Price Expectations (ZHPE) expect inventory to increase during the second half of 2021 or early 2022.
Pre-qualification is critical. Pre-qualification shows sellers you’re serious about buying and that you can secure the funding you need if your offer is accepted. In a market where multiple bids are the rule rather than the exception, it’s unlikely your offer will be accepted without a pre-qualification letter. Pre-qualifying can also help you set your maximum budget. If you live in an area where homes typically sell for more than asking price, you may want to skip seeing houses listed at your max budget to give yourself some wiggle room if you choose to bid above list price, or if you choose to include an escalation clause with your offer.
Highest and best. When supply and demand are balanced, it’s not uncommon for buyers and sellers to negotiate. But when sellers are routinely getting multiple offers, negotiations are unlikely. If you find a house you love, consider making your first offer your best one because you may not get a chance to counter. And don’t wait too long to submit your bid. In March 2021, houses spent an average 18 days on the market, and 83% sold within a month.
Offering more than the list price is common. Because mortgage rates remain low, you may be able to afford to offer more than the asking price. The most common 30-year fixed mortgage allows you to amortize an increased price over 360 monthly payments, which means for example, that even an extra $10,000 in the offer could equate to only $50 more per month in the payment, depending on your interest rate. However, it’s important to note that financing guidelines always use the lower of the sales price or appraised value – so if the house doesn’t appraise for what you bid, you would have to come up with extra cash to cover the difference between the appraised value and your offer amount. Talk to your HFG Licensed Mortgage Professional to ensure you have a solid plan in place before you bid over ask.
Be mindful of seller preferences. It may seem like getting top dollar is the most important thing for every seller. But there could be other parts of the transaction that are equally or even more important. Some sellers may be interested in an accelerated or extended closing timeline. Others may want to rent back for several weeks after closing. Working within the seller’s constraints may make your offer more attractive. In some instances, buyers have increased their earnest money deposit to show sellers they are serious and less likely to back out if their offer is accepted.
Professionals can help. Working with an experienced real estate agent and Licensed Mortgage Professional can help you navigate the ins and outs of buying during a competitive market. And help ensure the choices you make today will preserve your financial health tomorrow.
Give us a call today to speak with one of our Licensed Mortgage Professionals or start your loan application.