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4 Tips to Avoid Overpaying in Today’s Housing Market

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Since the beginning of the coronavirus pandemic, homebuyers have become accustomed to overpaying and playing dangerous games of bidding wars and exempted contingencies.

and Recent research According to Money and Morning Consult, 36% of people who bought a home in the last two years think they are overpaying. Research has also shown that recent buyers are willing to compromise on home size, style, location, and functionality to buy a home.

However, in the first half of 2022, mortgage rates soared and the housing market began to cool. Suddenly, a home-buying strategy that seems absolutely necessary these days, like March, may no longer make sense.

So what has changed? Almost everything.

Don’t assume that it will automatically be a bid war.Instead, find out how competitive the market really is

Bidding war It may have been the rule of the day since the surge in home purchases began at the end of spring 2020, but competition may not be as fierce as it once was. In May, nearly 58% of homes Redfin The agent was involved in a bidding war and was the lowest price in 15 months.

Chris Grimes, Team Leader of RE / MAX Homes and Estates in Nashville, Tennessee, said that while some affordable homes in the desired area of ​​the Greater Nashville area still offer multiple offers. peak. “Instead of getting the usual 10 to 15 offers, it’s now like 5 to 10,” says Grimes.

Many markets are slow. Nicole Ruth, branch manager of the Denver Ruth team, says the realtor she spoke to has a list with few screenings and no offers. You don’t have to be very aggressive in less competitive areas.

The key to success in the changing housing market is to study and understand it, Ruth says. As markets change, buyers need to focus on local markets rather than getting caught up in national trends.

It is also important to know the individual properties. “In any situation, the key issue is to gather as much information as possible about the property in advance,” says Frederick Warberg Peters, President of Coldwell Banker Warburg in New York. “Then you see how flexible you are and the best approach to making an offer.”

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Don’t settle for the first house you find.Instead, buy a home that suits your needs

In the midst of a pandemic buying frenzy, Ruth is a home and people who are willing to buy a home on a busy street with power lines running overhead just because there was no other option available. I met.

But now more inventories are on the market. According to the active list, it increased by 17% year-on-year in the second week of June. Realtor.com..When More lists are expected to be available As the years go by, buyers can gain more insight into the property they are bidding on.

Please do not pay the asking price automatically.Use the escalation clause instead

Fewer buyers have to settle whatever is for sale. Instead, they can focus on how the house fits into their lifestyle and their financial needs. Rueth says buyers now need to ask themselves. “Is this house really worth this amount?”

This is possible because sellers are also becoming more realistic about the market. At some point in the pandemic, sellers were pricing homes at prices much higher than the list prices recommended by listed agents. “Move them.”

Now the number of sellers is increasing Lower their asking price.. Over 22% of homes sold in the four weeks to June 11 have fallen, taking the highest market share ever since. Redfin We started tracking data in 2015. In some cases, these price cuts are taking place shortly after the first weekend of housing on the market, Ruth said.

Don’t assume that you have to get hot with a bold offer.If you’re worried about competition, one option is Escalation clause.. That way, you can tell the seller that you want to buy at a fixed price (or less), but you can also increase a certain amount if you have a higher offer (and only if) at the table. A good realtor can help you create an effective escalation clause.

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Do not give up the contingency altogether.Instead, look for alternatives to protect your investment

Another strategy that became common during the pandemic was to abandon the inspection and assessment of contingencies. This strategy may have been successful, but it was also incredibly dangerous.

Grimes knows buyers who have been exempt from inspection contingencies. So he basically bought the house “as is” and was responsible for the necessary home repairs. Thousands of dollars to repairIncludes clients currently involved in related proceedings.

Abandoning an unforeseen assessment can be costly as well. The lender requires an appraisal, so if the buyer gives up the contingency of the appraisal and the house is valued at a lower value than they offered, the buyer wants a higher amount. In many cases, this means filling the gap with the money allotted to the down payment.

“Instead of looking at a 20% down payment, it’s like a 10% down payment,” says Grimes. “They end up having to pay higher interest rates.”

Mortgage rates remained low, but the money saved from mortgage payments could offset the cost of unexpected repairs and increased down payments. That’s no longer the case for many today’s buyers who realize that they have to spend a lot of cash reserves and monthly income just to buy a mortgage in the first place.

If you need to be exempt from unforeseen inspections, there are limited ways to buy lemons to minimize the risk of additional repair costs. Some sellers may be okay with informal inspection before you make an offer.

The contingency of the appraisal is ideally if you have enough cash reserves to pay the potential difference in the asking price, or if you can afford to increase your monthly payments if you need to raid the down payment. Only exempt.

“This is the kind of market where strategy wins,” says Rueth. Perform due diligence on market conditions, ask questions, find out what the competition really is, and then plan an attack for the best results.