11 Apr Buying a Home in a Competitive Market
Many people found out in 2005 just how difficult buying a home could be. That year saw a record number of homes sold in the United States and Canada, and they sold at record prices. In fact, some of the major markets such as those in the suburbs of big cities actually saw driveway bidding wards erupt; offers were tendered to the owner of the property at an open house and immediately upped by other potential buyers. All of the usual rules of real estate went out the window during the big boom: sellers were advised to reach high instead of exercising discretion, buyers were encouraged to make offers on houses that they like right away. As demonstrated above, even the usually dismal tactic of the open house saw a lot of success for the seller in the boom that was 2005.
The Seller’s Market
What happened that year is called a seller’s market. Seller’s markets are a result of a combination of the following events:
- There are very few homes on the market. Either the homes are selling before they are even listed, or people are just not interested in selling. Fewer homes are being built as well. These conditions often occur in areas where the maximum number of dwellings that can be fit in has been reached.
- Lower interest rates. Interest rates are of crucial importance to the home buyer. A low interest rate, usually brought on by a nation’s financial leaders, means that potential buyers will not be paying as much to lending companies on their mortgages. This can be a huge incentive to buy, as even a one percent interest change can mean thousands of dollars in savings on a major purchase such as a house.
Seller’s markets are not applicable to all real estate niches. In fact, even during the big boom of 2005 there were still many areas nationwide that did not see a substantial gain in house prices. Housing prices are always contingent upon regionality, so one way to avoid a skyrocketing market is to look in a location that other people might deem to be less desirable.
Buying in a seller’s market
The thing about a seller’s market is that it is self-sustaining. Everyone benefits from the cuts in interest rates, and therefore everyone is interested in buying a house while they can get a mortgage at these lower rates. In turn, there are even fewer houses available on the market. Buyers must be prepared to do some preparatory groundwork before looking for houses, and should be prepared to act quickly when they find a home they like.
Preparing ahead of time
Before going out to look for a house in a seller’s market, buyers need to get a few things out of the way. The first thing to do is to get pre-approved for a mortgage. Pre-approval means that when it is time to make an offer, the seller of the house you are interested in will see that you have the money at your disposal already. When there are several bids placed on a piece of property, those that do not already have the proof of funds are going to be the first ones thrown out.
Some experts in real estate are also saying that having more cash for the down payment will help get a foot in the door for a bid, but how this entices the seller is not entirely clear.
You should also secure the services of a good agent before you go out looking for a house. Seller’s markets mean that many homes are sold before they are even listed; when they are listed, they are only on the market for a matter of days or, in the case of 2005, hours. Agents usually come with a lot of connections; they are aware of who is selling where and can give buyers a good heads-up when a potential home is on the market. Agents are also attuned to what clients are looking for, so their advice can be invaluable when making a purchase. An agent can also help in discerning exactly how much a buyer should bid on a home; too high, and you stand to lose money on your investment. Too low, and the seller may just turn up their nose.
Finding a house
Once you have completed the prep work, it is time for the legwork. Look for prices in your range on the internet in conjunction with tips from your realtor. Remember, you are going to have to move quickly whenever you see anything that grabs your interest. Still, don’t be too hasty and make bad decisions. Once you are in the house, take your time and look around to make sure it really is worth what you are willing to pay. Many home owners will count on the houses to sell themselves in a competitive market, but making a hasty decision now may cost you in the future.
It is probably wise to go out into the market prepared with the very maximum amount that you will spend on a house. Whatever you do, don’t exceed this amount. You may be able to get help on the initial mortgage through a co-signer or even an informal loan, but any debt accrued is debt that must be paid off.
Some potential buyers are using unconventional strategies when they place bids on houses. Writing out proposals to buyers is one method that has been tried, although how effective it is is hard to determine. If you do decide to write a letter, don’t make it too personal. Other buyers are offering sellers bonuses such as televisions or even vacations; these can usually be arranged through company discounts or air miles programs.
You could always wait
Some people decide just to wait and see if the storm in the real estate market passes by. Historically, there is evidence that the feeding frenzy will slow down and that buyers will not have to compete so heavily against each other for similar houses in the market. However, waiting too long can be risky, as housing prices are unlikely to fall and interest prices are likely to go back up. In this event, those not already in the market may find themselves unable to get in without significant help.