The housing market continues to get hot – and that is changing the game for both sellers and homebuyers. Due to the shortage of inventory, in a lot of cities, the housing market is experiencing bidding wars. And, the winning offers are often more than the asking price.
According to the National Association of Realtors, existing home sales increased 13 percent in May when compared to the previous year. The median home price also increased 15 percent to $208,000, which is the biggest increase since October 2005. And, the average home price increased 12 percent in April when compared to a year ago.
This is a good time for first-time buyers and homeowners who want to move to a larger house to buy. Prices are still well below the mid-2000’s highs. Even though interest rates have increased, there still fairly low. According to Freddie Mac’s weekly survey, the average rate on a 30 year fixed-rate mortgage was 4.37 percent for the week ending on Thursday, which was up from the 3.35 percent in early May. Going back to the early 70s and until 2009, interest rates were above 5 percent.
Even though the active market is good for both buyers and sellers, there are some challenges. Some real estate agents hold back choice homes from the listing database so they can market to their own clients first. Bidding wars can take a toll on potential buyers and leave them feeling frustrated. And increasing home prices can result in appraisals that come in below the agreed on price.
Following are some tips for navigating the current housing market:
Cash is important. To get the home you want you need to have enough money. Down payments range from 3.5 percent for federally backed loans to as much as 40 percent for homes over $1 million dollars.
According to Bob Walters, the chief economist at Quicken Loans, typical down payments on a regular mortgage are 5 to 10 percent. For buyers that need a loan on more than $417,000, you may have to put down 20 percent or more.
If the appraisal of the home is less than the purchase price, the buyer and seller have to negotiate whether the seller will reduce the price or the buyer will pay the difference in cash.
Get prequalified. Since mortgage lenders are still carefully scrutinizing a borrower’s ability to repay loans, sellers may not be willing to accept bids that are contingent on getting financing. Potential buyers who are already qualified for a loan will be more attractive to sellers.
It won’t be possible to lock in your interest rate until you have a contract. Since interest rates have been increasing, ask for the rate to be locked in for 30 to 45 days at no additional cost.
Get a real estate agent who is connected. Choose an agent who knows the neighborhood well. This person will probably know about homes that are not listed but will be soon, so you’ll have the opportunity to see them before they are listed.
Prepare for an auction. Jason Glast, an agent in San Antonio recommends that if you get multiple bids on your home, reject all of them and ask each bidder to submit a final and best offer by a specific deadline. This way the bids can be compared.
Jessica Edwards, a consumer specialist in North Carolina recommends that buyers who are competing for a house make their first bid their best offer. She said, “You may only get one shot.”
Glast added one more thing: to play off the seller’s emotions, he often writes a letter to the seller explaining why his clients are the perfect buyers for their house. He said, “There’s a bit of a dating ritual to this.”