By Michael Baker, Sr. Loan Officer
How do you buy the home of your dreams in a competitive market?
Currently housing inventory is at extremely low levels. When demand is high, and supply is low you have rising prices (thank you econ 101 professor). You also get multiple people interested in the same property. This leads to multiple bid situations, sales prices that go above the listing price and emotions that run high during these stressful times. In a competitive market nothing can be more frustrating then losing out on the home of your dreams. Below I’ll cover 5 tips to help you WIN that house in a competitive market.
5 tips to help you WIN the right home of your dreams in a competitive market!
1. Set the right expectations. First things first you have to set the right expectations with you, your partner, your Real Estate Agent, heck even your kids! If your goal is to be in a specific school district, in a specific 10 block radius, and specifically in a blue house with white shutters only, you are going to be sorely disappointing when your search comes up short and/or the only house that fits that specific criteria is $100,000 over your budget. Sit down with yourself or your partner and get realistic about what you WANT and what you actually NEED. The very first place to start would be with your budget. And ask yourself three things:
- Is it Right? Have you crunched your numbers carefully? Did you take into account how much you’ll spend on maintenance on the house?
- Is it Realistic? JUST because the “bank” or underwriting guidelines says you can afford $750,000 does that mean you personally can realistically afford that much house?
- Is it Restricting? Similar to item 1 and 2 if you spend $XXX,XXX on a house and $X,XXX per month on your housing is that going to restrict you from all the things you love like going out to eat, traveling and saving for retirement?
Shameless Plug: if you don’t know where to start with your budget talk to a good loan officer, if not myself, find one that you trust, that has experience and that has good recommendations from others. A good loan officer will be worth their weight in gold. They will tell you what is “allowed” as far as a budget goes for you, but then even better a REALLY good loan officer will discuss with you what that budget will mean for your day to day life.
2. Find the right Real Estate Agent. Okay, so you have set your budget and got that all down now it’s time to get a professional involved. Please do not try and go this thing alone. Like a good loan officer a good real estate agent is also worth their weight in gold. Do some research, ask your friends and family who they have used, go online and read reviews and then ideally find someone that specializes in your specific part of town you are interested in buying. Also, ideally, you would find a real estate agent that is dialed in to the Real Estate Agent community! This is priceless. I can’t tell you how many purchases I have worked where a great real estate agent has found a house for my clients before it even goes on the market. A good real estate agent has their finger on the pulse of the real estate community.
3. Write the right letter. When you get into a multiple bid situation if four offers get submitted at the same time for the full asking price, but one of them included a letter about you and your family I can tell you which offer I’d be more inclined to accept. Now writing a great letter doesn’t seal the deal for getting a home, but when you show your real side to someone and appeal to their human nature you are opening up the door to playing to the good nature of people and their emotions. This can be key. Be real in the letter but be careful about what you say. Talk about your family and envisioning yourself sitting on their front porch and watching your kids play in the front yard. If you notice as you are touring their house that the sellers now have grown children you could say something like “I imagine you all enjoyed having your children sit at your kitchen counter and work on homework and eat breakfast, and I’d love to see my little children doing the same thing in this house some day!”. Be personal. Also make sure and be careful. By that I mean be sure not to tip your hat to anything that could be a downside to your offer like “We’ve looked at hundreds of homes and with our limited down payment this is the only house we can afford.” You are setting off red flags that your loan might have issues getting closed.
4. Look outside the perfect neighborhood and look for the right neighborhood. This is hard, I get it. You get set on a certain neighborhood. They may have the absolute BEST schools, the cutest houses or an amazing town center area full of shops and bars and restaurants that you can walk to. But this also means that EVERYONE is thinking the same thing, and hence why it is such a highly desirable neighborhood. However, by moving out your search area to the next town over, or the next neighborhood, or perhaps even a neighborhood on the other side of town with ALMOST as good of schools you can find a better bargain in a less competitive market. But don’t go in blindly, go visit those neighborhoods. Spend time walking the area. I recommend literally sitting in your car on a street you are interested in living in and watching the goings-on. See if their are kids your kids age playing. Are the families socializing in their front yards and do they look like fun? Or are they all hermits that never leave their homes. Depending on whether you are an introvert or an extrovert either one of these situations could be to your liking.
5. Buy the right house that you are renting. This may sound crazy, but in a competitive what better way then to buy a house that never has to go on the market. If you like the house you are renting now, but perhaps it has some quirks to it, then you can make an offer to your current landlord that takes these “quirks” into account. You never know if a landlord is tired of being a landlord, or perhaps their financial situation has changed and they are in need of selling the home but were just waiting for your lease to expire. This is a great opportunity to purchase a house at a fair price, with little to no competition, and hey, you don’t have to move!
5+. Bonus Tip: Find the right home that needs the right work. You will always here smart folks in real estate say you should NEVER buy the biggest/nicest home on the block. In fact far better is to find the diamond in the rough and fix it up the way you like it. This may take some outside the box thinking on your part like perhaps lowering your down payment to have funds set aside to do the work you want to do after you buy the home. The beauty however, is the “rough” around the edges homes don’t bring in NEAR the traffic as the nicer homes, people see the work that needs to be done and they instantly get scared away. However, if you can look pass the work and see the beauty in the making you can find a GREAT deal on a GREAT house and you will more than likely be the ONLY one to submit an offer on that house.
In a crazy and competitive market you sometimes need to look outside the box to come in with an offer that will trump the others. Don’t be afraid to be creative, don’t be afraid to be crazy and don’t be afraid to crush your competition by using some or all of the tips above! Happy house hunting, I truly do wish you all the best.