How to win a Bidding war in Today's Crazy Housing Market
The spring homebuying season is in full effect. But there is just one problem: The majority of America is reporting a tight supply of residential real estate in most price points of the market.
And no matter how much the demand is there and how much lenders are willing lend, it means little if there are no houses to buy.
As a result, the few houses left and fought over in bidding wars, leaving many borrowers without a house.
Here are a few tips from Minnesota Realtor Jim Bradley to help win a bidding war:
- Offer Full Price or More.Money is a major factor in a seller’s decision, but not the only one.
- Eliminate Seller Paid Closing Costs/Points.It is not full price if you then ask the seller to pay your closing costs. If you need to the closing costs covered, make sure your offer Nets the seller at least what a full price offer would.
- Large earnest money up front.Show the seller you are committed and putting up risk to stand by your “word” (purchase agreement) to buy the home.
- Cash is King.Go in with cash if possible to eliminate problems of appraisals and financing. Appraisals are a problem as prices are increasing. New regulations make it difficult for appraisers and banks to meet the market changes.
- Closing date should match seller's preferred date. Buyers agent should ask Seller's agent what date the seller would like close on.
- Allow seller a couple extra days possession after closingthis gives them time to move out and lowers their stress. (Frowned on by attorneys.)
- If buyer is financing, include a statement that the buyer will make up the price difference in cash if the home doesn't appraise out for purchase price. (if buyer can do so) If buyer can’t pay cash, this will also relieve the concern of an appraisal problem.
- If buyer is doing an inspection,have buyer provide a statement that they will not nit-pick any items to re-negotiate price, but only structural or mechanical failures. Inspections were intended to be a way for the buyer to make sure they were not purchasing a major problem. Too often this is now being used as a way to re-negotiate the price with the seller. Remove this potential concern for the seller.
- If buyer is financing, have a well prepared Pre-Approval letter from the lender. Make sure it does not come across as a pre-qualification letter.
Real Estate Terms….
Adjustable Rate Mortgage
A type of mortgage loan that has a variable interest rate which is lower during early years, best for homes you’re planning on selling before interest increases.
Annual Percentage Rate (APR)
The interest rate of a mortgage loan broken down yearly, varying based on the initial amount of a loan.
An official number set by a licensed appraiser estimating a home’s value in relation to its condition and area.
How much a certain house may be worth in the future? If you purchase a home in an area that’s on the rise, there’s a good chance the market value of the home with appreciate.
The actual value of a home as determined by a tax assessor. The price the assessor identifies is what you’ll be paying taxes on.
Anything worth a dollar amount that you own. Assets will come into play when a bank determines how much they’re going to lend you.
A real estate agent that represents the party looking to purchase a home. Having one of these will make sure that someone’s got your back during negotiations.
Fees that must be paid at the closing of a deal, including things like excise tax, loan-processing costs, and title insurance.
Conditions posed by one party involved in a sale that must be met prior to the official closing. For example, an inspection contingency is common, protecting buyers from potential problems that may arise in a home inspection prior to purchasing the home. If the inspectors find a problem and you’ve made a contingency regarding the condition of the house, there’s a good chance you’ll be able to walk away late in the sales process.
An offer with an adjusted dollar amount offered by the seller after an original offer. Expect counter offers to be much higher than an initial offer. The offer process is often a series of offers made back and forth until both parties can agree on a price.
When a single agent represents both the buying and selling parties. You can save money on commission by taking this route, but it’s hard to get the best deal possible when your agent is also representing the rival party in a sale.
Earnest Money Deposit
An initial deposit into an escrow account made by a potential buyer to show that they’re serious about purchasing a home. This amount can be anything that both parties agree on, but often the “bigger is better” line holds true.
The portion of a home that a buyer has actually paid for in relation to how much of a loan is still outstanding.
When a third party holds onto all money and important paperwork involved in the home buying transaction until both parties have met all of their obligations, often to protect both parties involved.
FHA 203K Loan
A special loan from the federal government designed to help people repair fixer-uppers they plan on purchasing or repair a home they already own, typically reserved for situations traditional investors might find too risky.
Fixed Rate Mortgage
A type of mortgage loan that has a predetermined interest rate throughout the long life of the loan, often around 30 years. This is best for when you’re planning on purchasing a home and staying in it for a long time.
Often referred to as a repossession, this is when a lender forces the sale of a property they’ve mortgaged after a borrower fails to pay or meet other terms of their agreement.
For a few hundred dollars, professional home inspectors will come check out every inch of your potential new home, searching for problems that should be addressed prior to signing anything.
A policy taken out when you purchase a home to help remove the personal liability from accidents that might occur on your new property, as well as things like hazard insurance and theft protection.
A real estate market in which homes are flying off the shelves and buyers should expect to pay premium prices.
An easily viewable statement (hardcopy or digital) that a home is for sale, which often details the specifications regarding a certain house.
An agent represents the seller, hosting open houses and seeking potential buyers.
The lowest price a seller is willing to sell for that the buyer is willing to pay. This is called a market value because it varies greatly depending on how well a certain market is doing.
A contract that ensures a loan will be repaid using a home’s title as leverage.
A buyer’s proposed price for a piece of property.
An official letter from the bank that states how big of a loan they’ve pre-approved you for. If you’ve got more assets and good credit, you’ll probably get more money.
Getting a new loan on your property, typically replacing prior loans. This can help you save money if you find a better deal.
When the real estate market is doing poorly and houses aren’t moving quickly. This opens the door for a final sales price much lower than the cost on the listing.
A fee paid by the buyers of a home to title insurers, who then investigate to make sure the home was sold legitimately.
Great Ideas for First-time Homebuyers
How to make it through the Real Estate Maze
In these market conditions, even simple tactics or connections a potential home-buyer can have could make the difference between owning a home or not. Homebuyers are caught in a storm of low inventory, high demand and tight credit availability.
Jim Bradley, Real Estate analyst offers 10 tips to help the first-time homebuyers navigate the market:
- Know what you can afford
When looking for a new home, make your search more effective by knowing how much home you can afford. Carefully calculate the overall monthly payments. Be sure to include additional costs like property taxes, insurance premiums, homeowners insurance, homeowners' association dues (if applicable), etc. Look at your monthly budget to understand how a mortgage payment will fit into it.
- Identify your potential Down Payment
Do you have 3.5-20% of your target purchase price available for a down payment? That's often considered the industry norm, but there are other options available. If you don't have the funds for a significant down payment, it may not be a problem. There are a variety of loan programs offered at various credit levels. Some mortgage programs have loans that offer a 3.5% down payment or even a no-down payment option for veterans and active military. It is important to note, however, that most loans that offer less than 20% down have additional insurance premiums that will add to the monthly payment.
- Work with a knowledgeable local Real Estate Analyst
Pinpoint the area where you'd most like to own a home, and then connect with a real estate agent who knows and works in that area. Make sure that the agent has worked extensively in that neighborhood and has insights into local matters like taxes, schools, new developments and other issues that may be important in the contract process. Find out if your agent works full time or is selling Real Estate just a hobby to make extra money. Ask how many homes the agent has helped buyers purchase in your desired location to gauge their experience working in that particular area. Agents who list and sell homes also should have a good understanding of fair market value for the homes you're considering.
- Evaluate your preferred neighborhood
You think you know where you want to buy a home, but how much do you actually know about the neighborhood? Visit the area at different times, including during heavy commute times, weekends and later in the evening. What's the traffic like for kids in the neighborhood? How far is the nearest grocery store? Also, talk with the neighbors in your desired community. What do they like about the area? What do they dislike? Their perspectives may offer greater insight into your desired location.
- Get credit ready
Buying a home may be one of the largest financial decisions you ever make. Be prepared. Get a copy of your current credit reports, identify any discrepancies, and get them fixed — if possible — before you talk to a lender.
- Hold off on large credit purchases
Large purchases, such as a car loan or lease, may impact your debt-to-income ratio. Changes to this number may affect your ability to qualify for the loan amount you require. Avoid taking out any loans or adding significant debt to credit lines before you try to purchase a home. Make sure not to purchase anything while your under contract with your new home until you have closed the loan and the transaction is recorded.
- Season your down payment funds
Make sure your down payment and closing-cost funds are in your account 60 to 90 days prior to closing on your home. Some loan programs may require "seasoning" on those funds, meaning they have been in your account for a certain amount of time. Be sure to know about any conditions on these funds from your lender so that you don't hold up closing. If you will be using any gift funds from family or friends for your home, be sure to get them prior to when you will need them. If you have any questions check with your mortgage professional.
- Understand rate vs. points
With the many financial considerations that go into buying a home, none may be as confusing to first-time homebuyers as the issue of "points." To start, in the real estate arena, points are generally a fee that is paid to the lender to lower the interest rate on your mortgage. One point is equal to 1 percent of the loan amount. Is it better to get a lower interest rate by paying points upfront? Or are rates so low that the reduction offered by "buying down" the rate is minimal? Consider these options carefully, and make use of the many online tools and calculators to help you understand the cost implications of both.
- Know where you stand with lenders
Borrowers with higher credit scores — like those with scores of 720 or above — can often shop around for the lowest available interest rate and get a conventional loan. Borrowers with lower credit scores, especially those with scores of 640 and lower, may experience higher rates because of the potentially higher assumed risk by the lender. For these borrowers, don't be discouraged if you can't get the lowest rate. There often are still many promising loan options available, and the difference in payment due to the higher rate may be less than you expect.
- Now Get Started and Find Your Perfect Home
Trying to time the market perfectly is impossible. Find the home that is right for you. Waiting may cause you to miss out on lower rates, lower home prices or even that perfect home.