A recent article from National Association of Realtors’ HouseLogic captures some great strategies when looking to purchase a home in this seller’s market. I know you’ll find the article by Lynn Ettinger as insightful as I do.
Lynn writes that a competitive real estate market can set buyers up to purchase a home that’s either beyond their budget – sometimes hugely beyond – or doesn’t meet their needs, a 2021 survey by Bankrate and YouGov reports.
The survey found that recent homebuyers, including 64% of millennials, had regrets about their home purchase. The top reason? They were unprepared for maintenance and other home ownership-related costs.
On top of that, 13% of millennials said they think they paid a higher sales price than they should have.
“Things in homes always break down, so people should put aside a budget for anything that will need fixing,” says Lawrence Yun, chief economist at the National Association of Realtors. “A rule of thumb is to anticipate 1% or 2% of the home price for potential maintenance. So, for a $300,000 home, that means setting aside $3,000.”
Seeing beautiful homes on television is one thing that might tempt homebuyers to go over their budget, an NAR report on home staging finds.
“Shows can create unrealistic expectations for the home buying process and how homes should look,” says Brandi Snowden, NAR director of member and consumer survey research.
In time, buyers can view features that used to be luxuries as necessities. They believe everyone has them and should. One solution: Work with a Realtor as early in the process as possible.
“Make sure your agent knows your budget so they can help you set expectations and stick to them,” Snowden advises.
In addition to pressure to exceed their budgets, buyers are facing these five hurdles, Lynn writes:
Requests to waive contingencies
Tamara Suminski, a real estate agent at Beach Real Estate Group in Manhattan Beach, California, is seeing not only bidding wars but also sellers wanting buyers to waive contingencies.
“With an appraisal contingency, if the appraisal comes in low, then the buyer has choices. They can choose to try to renegotiate with the seller, bring in the difference or cancel. When they remove that contingency and its protection, if the home doesn’t appraise at the right level, the seller is not likely to renegotiate with them. And the buyer has waived their right to cancel. If they cancel anyway, they’re risking their deposit.”
Some buyers are also waiving contingencies related to home inspections. These investigations are an opportunity to have a home inspector view the home based on disclosures and for the buyer to use the findings as a bargaining tool, Suminski says.
Eliminating these protections can end up costing buyers money. And the more offers the buyer writes and loses, the more risk they’ll tolerate. So, they might waive contingencies and regret it later, Suminski says.
Talk to a buyer’s agent who will guide you through this and explain the risks of removing protections and unknown variables.
Speed showings and decisions
Bryan Yap recently bought a home in an expensive and highly competitive market – Orange County, California. He found that with the pandemic, each showing lasted only 15 minutes.
That was one of the biggest hurdles. “We’d see three, four or five homes in one day. It’s hard to keep track of what you like and don’t like with each house.
“What I would do differently is take notes immediately after viewing a home. If you’re able to prepare beforehand, create a list of wants and requirements in priority order. Immediately after seeing each home, rank it based on the list.”
Focusing on top of price range
“If you’re looking in a micromarket where listings are achieving multiple offers and homes are going above asking price, don’t set your sights on the houses at the top of your price range,” Suminski says. “If $300,000 is your upper limit, look at houses priced at $250,000 or $275,000. Otherwise, you’re going to be outbid every time.”
That was the process Yap used when he was looking.
“I looked for homes $25,000 under my max budget. I went on Zillow, looked at homes that had sold recently and tried to calculate the average over-listing price and factor that into my offer.”
The need to compromise
Yap’s must-haves were three bedrooms, two baths and being closer to the city center of Anaheim.
“I was able to get three beds and two baths, but I did have to compromise on location. I also had to compromise on price, which was doable because I could still afford it. To compete with all the potential buyers, I knew we had to either offer an over-list price or remove some contingencies.”
Suminski advises adjusting your search outward geographically, even if it means a longer commute.
Buyers might also have to compromise on property types and features.
In addition, they should consider doing some DIY projects instead of wanting everything to be move-in ready.
“They might have to be willing to look at townhouses instead of single-family homes or install carpet and paint on weekends,” Suminski says.
Information overload
In the two years before he started searching for a home, Yap did a lot of reading.
“It was a massive plan I had to come up with and stick to so I’d be able to afford to buy a home.”
Because of how hot the Orange County market is, agents scheduled showings as soon as a house was listed or showed “coming soon” status. Yap treated the home search as a second job, using lunch breaks and evenings to check emails, do online searches and text his real estate agent about what he wanted to see.
“I had to make a lot of sacrifices. People wanted to set plans with me for the weekend, but I would say, ‘Sorry, I have to go view homes that day.’”
Yap primarily credits his real estate agents, including Suminski, for keeping him informed.
“They made all this possible. I learned a lot from them.”
Some agents, like Suminski, hold an accredited buyer’s representative designation but usually work with sellers as well as buyers.
“An [agent with an] ABR has taken extensive buyer’s representation training,” Suminski says. “They’ll provide education to buyers so they’re learning as much as they can about the market, including the risks involved with different negotiations.
“If buyers are going to shorten terms or remove protections, they need to be well-informed about the pitfalls.”
Learn from experiences
That access to information and guidance will help buyers make an offer on a home, especially in a competitive market.
“Today’s buyer has seen and written offers on many properties before they get their offer accepted,” Suminski says. “That’s common across the country. Each is a learning opportunity for buyers about the information they might need to be researching so they can move quickly.”
When you act on advice from recent buyers and agents, you can stay well-informed and get good results, even in a tough market. And that’s the best way to prevent homebuyer’s remorse.
Thanks to Lynn for such insightful guidance. This market absolutely requires the guidance of a Realtor to help navigate such unfamiliar areas. Realtors work for their clients every day of the year. That’s Who We R.
Greater Chattanooga Realtors is The Voice of Real Estate in Greater Chattanooga. A regional organization with more than 2,400 members, Greater Chattanooga Realtors is one of 300 local boards and associations of Realtors nationwide that comprise the National Association of Realtors. Greater Chattanooga Realtors service Hamilton and Sequatchie counties in southeast Tennessee and Catoosa, Dade and Walker counties in northwest Georgia. For more information, visit www.gcar.net or call 423 698-8001.