When winter finally ends and the temperatures start rising, it’s a fair bet that the housing market will heat up, too.
After all, new home construction is only a third of what it was in the prerecession days of 2006, so it’s expected that demand will outstrip supply. Meanwhile, after housing prices have shot up over the past year – 11.3 percent, according to the S&P/Case-Shiller Home Price Index – prices have dropped by 1 percent in each of the last two months. If you’re thinking this spring is a good time to starting looking for a house, you are hardly alone. That, of course, is the problem. Your dream house, which might have been easy enough for you to grab a few years ago, is being eyed by other potential buyers.
“It’s a sellers’ market,” says Dani Babb, a Newport Beach, Calif., real estate consultant, citing the low inventory levels.
Get your financing lined up. You may not fear being turned down by the bank, but the seller doesn’t know that. The seller may also be in a hurry to hand you the keys.
“Perhaps the seller’s hot button is being able to close within 30 days or having flexibility in the closing date, which could be important if they, too, are purchasing a home but are unsure when it will close,” says Brian Koss, executive vice president of Mortgage Network in Danvers, Mass.
So get preapproved – not prequalified.
Getting prequalified means you give a lender a snapshot of your financial life, but there are no papers to sign and no credit check, which should tell you something.
Preapproval, on the other hand, “involves filling out a complete 1003 mortgage application form and all documentation to show your assets and income, so there are no surprises down the line,” Koss says. “Since new mortgage industry regulations took effect earlier this year, there is a greater chance that a technicality or change in a borrower’s profile will negate a loan preapproval that everyone thought was real. So a full validation and vetting of all details will protect you best.”
Try to find out why the seller is selling. Buying a house can be an emotional decision. Selling a house can be, too.
“An emotional seller versus a nonemotional seller will react to different things,” Babb says. For instance, if you have sellers who raised their kids in the house and lived there for most of their lives, “they may want and appreciate a buyer who will do a lot of upkeep. Sending a personal letter through your agent or to the owner may give you a leg up over other offers, or at least help the seller counter your offer,” Babb says.
Babb adds that if you’re in an occupation that “often speaks to the hearts of people,” like a firefighter or teacher, make sure the seller knows what you do. It may not be fair to the other potential buyer who is an actuary, but he probably already mentioned to the seller that the guest bedroom would be a perfect home for his 97-year-old grandmother.
On the other hand, money talks. “If the seller is in foreclosure or behind on payments, the seller may want out quickly and want the highest chance of closing the home before foreclosure,” Babb says. “Usually a high down payment or all-cash buyer will speak to this seller even if the offered price is lower than someone who can close in 45 days.”
Be flexible. If you’re competing against other buyers, be as accommodating as possible, advises Ron Throupe, a professor of real estate at the University of Denver’s Daniels College of Business. “Forget putting in a clause that you have to sell your house first. In this market, you will lose,” Throupe says. “You have to be able to take on the risk of two homes for a short time if needed.”
Sheryl Hodor, an agent with Berkshire Hathaway HomeServices Florida Realty, agrees. “The buyer should feel comfortable making an offer with a quick closing, no mortgage contingency and a limited inspection time frame,” she says.
A mortgage contingency allows buyers to back out of the deal if they can’t get financing for the house. Sellers understandably don’t like mortgage contingencies – they don’t want to wave off potential buyers only to learn that their buyer can’t actually purchase the house.
Sweeten the deal. “It’s not uncommon to [offer] over the asking price in order to ensure your contract is the one accepted,” Hodor says.
How much more is up to you, but even another $500 might get your seller’s attention.
You could also consider waiving the appraisal. That means if the bank determines the house isn’t worth the purchase price you and the seller agreed to, and it won’t lend you all of the money to cover it, you’ll make up the difference – provided you have the funds, of course.
Be fast. This is a big decision you ideally don’t want to rush, but if you know you can afford the house and you love it and the neighborhood, then, yes, you probably should rush.
“In an age of instantaneous communication, minutes count and can make the difference between an accepted or rejected offer,” Hodor says. “Be prepared to use as much technology as possible, such as electronic signatures, in order to ensure immediate responses.”
Be bold. If you really want the house, don’t get too cute and make a lowball offer, thinking there will be a lot of negotiation. You should suggest something close to the price the homeowner is expecting, or risk your offer being ignored. And this isn’t the time to be petty – or cheap.
“Don’t haggle over $1,000 on a $400,000 deal,” Throupe says.
Provide good customer service. Wait, isn’t that the seller’s job? You would hope so, but in a competitive market, it comes down to thinking of the homeowner as your customer. You’ll get his business (well, the house) if you’re personable, easy to work with and able to offer a good deal. Of course, you want to make sure you don’t offer the seller such an amazing deal that you hate yourself the day after closing. You want the welcome mat – what you don’t want is to be a doormat.