Not all real estate markets are created equal and there are mistakes buyers should avoid when purchasing a home in both a seller’s and buyer’s market.
What is a seller’s market? Generally a seller’s market in real estate is when the demand for homes outnumbers the available homes on the market. This is the kind of market where you see multiple offers on one home sending the price up and knocking many buyers out of consideration. Serious prospective buyers need to be fully prepared and have reasonable expectations in order to be the successful bidder on a property that is expected to have several offers especially those that are reasonably priced and in a more moderate price bracket.
Avoid these mistakes and give yourself a chance to stand out and end up with the home you are pursuing:
- Don’t wait to get pre-approved: You start your home search without a firm commitment from a lender as to your purchase level. Many buyers, especially first-timers, think they can just go out and look at homes and contact a lender about financing once they have identified one. This does not work on two levels. No offer will be accepted without confirmation from a lender that the buyer qualifies, and they may find out that they actually do not qualify to purchase a home at that price. The first step in the home buying process is to talk to a lender to determine your buying power and then to start looking. That avoids a lot of heartache. There is nothing worse than touring homes out of your price range. It will ruin you for the ones that you can actually afford.
- Stay within your budget: Just because you qualify for a mortgage amount doesn’t mean you should buy a home based on that number. The last thing you want to do is end up house poor. You need to factor in all kinds of unforeseen expenses which may come up such as repairs and continued upkeep. You do not want to be tied down by your mortgage. Also the listing agent needs to be sure of your strength as a buyer and will most probably request proof of funds. They will be drawn towards a buyer they feel is not stretching their finances and end up possibly backing out of the contract. And don’t forget that you will be competing with other buyers and need to have the flexibility to raise your initial offer. If you look at the top of your budget then you will not be able to compete in a multiple counter offer situation.
- Wants vs needs: You have a laundry list of wants and needs. In a competitive market you are probably not going to be able to find everything you want in a home and you need to be clear about what you may be able to live without. If not, while you are looking for the perfect home, the one you may have been able to turn into your ideal home will probably be gone. You may not like the kitchen or bathrooms, but you should consider whether you can move in, live with them for a while and then upgrade when you can afford to. Generally the perfect home is going to be out of reach financially. By the same token, don’t fall in love with a home that may not work for you. Buying a home with only one bathroom, especially when you are a growing family, will come back to bite you particularly when there is no room to add on.
- Waiting for a deal: You are waiting for a deal. Every buyer wants a deal. In a seller’s market there are no deals and if you come in with a really low offer it is probable that it will not be considered, certainly if there are other offers on the table. Always make as strong an offer as possible leaving some wiggle room in case a counter offer comes back, and then you should make the best offer you can. Remember the seller has other offers to fall back on.
- The offer: Make sure that your offer is clean. Asking for the kitchen sink (not literally) won’t go down well in a competitive market so keep to the basics. Once you are under contract you may be able to negotiate that chandelier you want but the less you ask for the more attractive the offer.
- Repairs: You expect the seller to fix everything that is wrong with the home. Many a deal falls through when it comes to the inspection period. Always inspect but don’t expect the seller to repair every item reported on the inspection report. There may be some major items and those should definitely be addressed, but a handyman can probably fix many of the items on the report. Remember that the seller has probably lived in the home for years with many of these “faults” without a problem. An example is an outdated electrical system. The seller is generally not going to upgrade that for the new buyer. If there is a major problem with the home that is discovered then that is a different matter. The seller is going to have to disclose that to the next buyer if you back out, so that is definitely a matter that should be negotiated.
- Negotiation: You lack flexibility. The purchasing of a home is about negotiation. Both sides of the deal need to feel comfortable that they are getting what they want and not being bullied into something they will regret. If each party feels the other is negotiating in good faith then the outcome will be successful. Always remember that in a seller’s market the seller has a stronger position and there are probably backup offers in the wings. Depending on how much you want the home you may need to compromise.
The basics in a buyer’s market are the same: you need your pre-approval; stay within your budget; be sure of your wants and need. The difference will be:
- Your offer: You can be a little more conservative in the price you offer, especially if the property seems to be overpriced. Don’t lowball your offer. That doesn’t go down well in any market, but if you make a serious first offer then you will be seen a a serious buyer and the seller should be willing to negotiate. Also don’t be afraid to ask for items you have seen in the home. The seller may be more open in this kind of market.
- Repairs: The seller may be more open to make repairs, depending on the price you offered. Don’t go crazy but certainly don’t be afraid to ask for the more major repairs to be done.
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