The Chatham Center
TENNANT & EWER, P.C.
ATTORNEYS AT LAW
STRATEGIES FOR BUYING A HOUSE
IN A TIGHT REAL ESTATE MARKET
The recent real estate market has created bidding wars, buyers paying cash and homes selling for more than their asking price. Are we entering another housing “bubble” or is this just the new competitive nature of the home-buying process?
The number of homes for sale nationwide fell to a new low in the past few years, leaving would-be buyers chasing a shrinking supply of homes. It’s not that the prices are crazy, but buyers just outnumber the available homes for sale. Prices are starting to rise as a result of strong demand and relatively low supply.
In this type of tight real estate market, what is a prospective buyer supposed to do? Take a deep breath, and follow the EIGHT strategies below:
1. Check Your Credit. Before setting foot in an open house or a lender’s office, check your credit reports at AnnualCreditReport.com (you can get one free report annually from each of the three credit-reporting companies at this website). If you see anything that does not appear right or needs updating, you should contact those companies to make changes to your report before you start the home-buying process. Also, consider buying your credit scores (one option is myFICO.com). With your scores in hand, you are now in a position to negotiate with a lender saying “I’m looking for a 30 year fixed mortgage. I have a FICO Score of 790 and I can put 20% down. What sort of interest rates and closing costs can you offer me?”
2. A Lender Pre-Approval Letter is Mandatory. In a competitive market you need a Pre-Approval Letter or realtors and sellers will not talk to you. Be prepared for a stringent mortgage underwriting process. Lenders want to see a consistent income stream and all gifts and deposits documented. When securing your Pre-Approval Letter be truthful and forthcoming with your lender. If you are not truthful, further down the road in the mortgage process, you will not get your mortgage commitment and will not be able to purchase your home. In addition, you will have wasted everyone’s time.
3. Stay Calm. Do not spend more than you can afford. With this type of “frenzy” in the market, do not get caught up in the hype and spend too much money. Be conservative. You do not want to be “house poor.”
4. Make Your Best Offer. Remain calm and be realistic. When bidding on a home with multiple offers, you need your offer to stand out. Realtors note that usually the best buyer they have in a bidding war is the one who lost the last bidding war. That buyer is ready and does not want to lose again. You really do not want to be this person. It usually leads one to bidding over their limit. However, in a rising market, if it is really the house for you, and an additional $5,000.00 is going to win the bid, then make the bid.
5. Propose a Larger Downpayment. The downpayment is the amount of the price you are paying out of pocket, that is, the price less the amount of your mortgage loan. If possible, put down the largest downpayment you can afford without becoming cash poor. The standard in the market is 20%, but if you can make it more, it is more likely your offer will stand out from the rest. A large downpayment sends a message to the seller that securing a mortgage from a lender will be less of a problem. Note that a downpayment is different from the deposit paid at the time of signing the Purchase & Sale Agreement, which is typically, but not required to be, five (5%) percent of the purchase price.
6. Be Flexible. If you are competing for a house with other buyers, stand out by being flexible, especially with the closing date. If all things are equal – the seller is getting the same dollar amount from you as the next person – but if you give the seller the flexibility of the settlement date that the seller prefers, your offer is going stand out and could seal the deal.
7. Find a Good Real Estate Agent. An experienced real estate agent may alert you to homes before they come on the market. Plus, a respected buyer’s agent can help you stand out with the seller’s agent.
8. Retain a Real Estate Attorney who is a “deal maker not a deal breaker”. If there are unexpected problems, an experienced real estate attorney will know how to hold the deal together, while protecting your interests. A real estate attorney will present you all the facts and provide you your options to make a reasoned business decision on whether to buy the house or not. In the end, the decision will be yours, but you will be making it with the advice and counsel of a seasoned real estate attorney.
FOR MORE INFORMATION PLEASE CONTACT:
Robert W. Tennant, Esquire
TENNANT & EWER, P.C.
29 Crafts Street, Suite 500
Newton, MA 02460
Facsimile: (617) 964-1307