We bring you this blog with extreme optimism. You CAN buy a house. However, it is absolutely critical to have proper expectations about the market as you dive in. You may be hearing all kinds of scary tales online about how hard it is to get a house. Are they true? Yes.
If your hearing the story from someone who bought a house more than 6 weeks ago, it may not even be “real” enough. Real estate is hyper-local and hyper-reactive. Things change weekend by weekend. Take a look at this article where Barbara Cochran states her #1 pick to buy a house, despite the competitiveness, is the Raleigh market (yes that includes surrounding areas) Barbara Article
At Core Realty Advisors, we fully believe in making sure our clients have a thorough understanding of what it takes to buy a house. Here are 10 things you NEED to know:
1. Should you wait? It’s important to ask yourself this question. In almost every case the answer is No. Every day you invest in your own future rather than paying rent, is equity earned and not lost. Furthermore, the buying power of your money goes further with low interest rates. There are no local economists predicting any sort of collapse so “waiting it out” means you could be waiting a long time. That being said, if you are search area is really small and non-negotiable, you may need to save more money to afford the increases there. Additionally, if you do not have money on hand to win an offer, you may need to consider saving more. It might be good to refer to our graphic for how interest rates impact your buying power. Click here
2. Sight Unseen. This is exactly what it sounds like. Many many homes that are hitting the market in Coming Soon status are getting offers before any showings can even happen. In the Triangle MLS, we are allowed to book showings for the future date during this period but we aren’t allowed to actually show the property until it’s live. That being said, desperate times call for desperate measures and buyers are submitting offers based on the pictures online only. Regardless if this is something you would consider, you need to understand that other buyers (your competition) are doing it.
3. Showings book FAST. If a home hasn’t gone under contract sight unseen, booking a showing means that your schedule, the agents schedule and the availability of the home to see all have to line up. We can no longer have overlapping showings. Be as flexible as you can, and ask to leave work to get in the first day if at all possible. Being quick is the name of the game. If you can’t get there the first day but have hired us to act as your buyers agent, we can preview the property for you to at least have someone you trust walk through.
4. Offer deadlines aren’t guaranteed. Listing agents all have various methods of holding offers, publishing deadlines and communicating with buyers. Each situation is different. There are no “rules” on how it has to be handled in our industry. If you see a deadline for offers, DO NOT WAIT until the last minute because a seller has the right to decide at any time to take an offer they have in front of them. Ultimately sellers control this, not the agent, and there are no guarantees.
5. Why won’t the seller just counter back? Many buyers are asking us after they submit an offer, if the seller will just come back to them with new terms. Likely not. You’ll need to present your very best offer the first time and in most cases you only get one shot. For each offer you put in, there could be 15-40 other buyers submitting offers. The seller is overwhelmed looking through them all. They are most likely to go with the path of least resistance and pick the one that gets them the most money with the most assurance of getting to the closing table. Strong Due Diligence fees can be a deciding factor along with the sale price. In addition, we have some tricks up our sleeves if you are willing to improve your chances with an “as is” addendum assuring of no repair requests or an appraisal addendum indicating that you as the buyer will pay your offer price regardless of what the appraisal price is. If you are new to the home buying process, it is critical to understand something: We do not know what others are presenting as their best offer. It’s a blind offer system not an auction market. You simply have to do your best and hope that it wins.
6. Above asking offers. “Throw statistics out the window”: That should tell you something. An agent we went under contract with said this to us: “In this market, offers are significantly above asking and ultimately a home is worth what buyers (or the market) is willing to pay.” Looking at closed comparable sales “comps” will help inform you what the potential appraised value will be. You’ll need to understand how that might impact your money needed to close and a good lender will educate you on that. Closed comps become public record and are historical data that represent what a winning offer looked like 30-90 days ago. In this current market, 60 days ago was a whole different ball game. Every house under contract right now with offers $25- $75K ABOVE asking will soon become comps setting the new bar in a neighborhood. With a market changing this quickly there is a lack of evidence to support current prices but we expect that appraisal shortfalls will ease up as more and more of the homes that are selling well above asking price are recorded and become public record.
7. It takes multiple tries: Virtually every home is getting multiple offers. That means, in almost every price point, buyers will likely have to make several offers until you win one. The good news here, if you keep trying, your likelihood to win increases. If you don’t try, you won’t have a chance. Is this all due to a shortage of homes listed? No. Our highly competitive market is because we don’t have enough inventory to keep up with the current demand – it isn’t LESS inventory, simply not enough. We are actually seeing 10% more closings than last year, and over the last three years. That means we continue to have more closings. Each closing represents someone who “won” a house (likely after multiple tries) and one of those could be yours. In a normal market a buyer would see 20 houses and make an offer to go under contract. Right now buyers are seeing 50 houses and making 10 offers before finally going under contract. 3 YR CLOSED SALES
8. You need money on hand for Due Diligence. In North Carolina an offer includes a due diligence fee that the buyer turns over directly to the seller to show their level of intent to get to the closing table. This is refunded if you close – but you forfeit this amount if you back out for ANY reason. It is your “skin in the game” as a buyer. This number is typically the second most important aspect of the contract after purchase price because the sellers see it as assurance that the you as a buyer will get to the closing table without issues with appraisals and inspections. Buyers are throwing a lot of money at due diligence. It isn’t uncommon to see $10,000-$25,000 and even $50,000 DD Fees. This is especially hard for buyers who are getting 100% financing but it’s important to understand what it takes to compete in this market. Please note, there is NO rule of thumb for this and no standard. It can vary with each home you submit an offer on based on market interest, expected appraisal price, expected big repair items, etc. Trust your agent to help point these things out and then work out what you are willing to put on the line to win the contract.
9. Winning an offer is not overpaying. Listing prices are typically based on looking back 30-90 days back of closed comparables (“comps”) in their area. Closed homes are a critical thing to understand. That is historical data. A free trade real estate market is a living entity. It is dynamically dependent on the demands of home buyers right now. Today. Final sales prices are reflective of pent up demand for a home. A home is not “worth” what the comps say. A home is worth what the market dictates. Ultimately you’ll need to decide each and every time you make an offer, what is the best offer you are willing to make on a home. Each time a home closes, a new bar or a new “comp” gets set in a neighborhood. If you buy now, you will likely see homes in 3-6months selling for more that use your home as their baseline for pricing. Comps are basically a self-fulfilling prophecy – if you pay more for your house the houses around you are worth more.
10. Be brave. We get asked every time, “how high do I have to go?” For all those that love numbers and statistics, they will ask “how much do I have to submit above asking in order to win”. That is a number that is changing SO rapidly we do not have statistical data on it. What was winning 6 weeks ago is not cutting the mustard this weekend. Go back to our advice to put in an offer that indicates how much you want that specific home and that is all you can do. If you are like most buyers now, you’ll have to submit 5-7 offers (or more depending on the area and price point). Each time we hope to gain insight from the listing agent where your offer fell in the group that wasn’t accepted. We have some custom Core Realty Advisors addenda, drafted with the assistance of an attorney, that can help set you apart from other buyers, but there are no guarantees. Ask us about our special addenda when submitting an offer and discuss what can help you get the “Congratulations, you got the house!” call.