As we emerge from the variables and uncertainties of the past 18 months, we are witnessing what appears to be a total renaissance in real estate: the realization that people no longer need to be chained to an urban center for their livelihoods. Platforms like Zoom and different types of cloud-based technologies have made remote working the new normal. This, in turn, has led to an explosive migration of human capital to areas previously never considered, the chief attraction being lower costs of living and an overall better lifestyle for families.
In Freddie Mac’s April 15 Perspectives report, Sam Khater, Vice President and Chief Economist, Economic & Housing Research, estimated that “the housing shortage increased to 3.8 million units by the end of 2020.” He added, “The main driver of the housing shortfall has been the long-term decline in the construction of single-family homes.” The pandemic only made matters worse for the lag in construction. Lumber production and other building materials are egregiously behind in their schedules, meaning builders continue to struggle.
And with the Federal Reserve taking a cautious stance with interest rates as it tries to balance the risk of raising them or tanking the economy, Chairman Powell has made statements to the effect that the low interest rates will not change any time soon. This will continue to attract buyers who are eager to lock in low mortgage rates.
Needless to say, with demand seriously outstripping supply, competition for properties will continue to test buyers’ savviness. With this in mind, here are five suggestions for placing winnable bids:
1. Constantly check real estate websites for the newest listings, then make a solid offer immediately. You need to catch the house as soon as it hits the market. Have your lending documents to make that offer pronto. This leads to the next point on how to choose a lender.
2. Use smaller, regional lenders for financing versus national ones. Local lenders are hungrier for new business and will likely go out of their way to expedite loans, whereas national lenders are more bureaucratic and typically don’t give the same level of customer service as a local lender. As a result, good local lenders can often achieve a closing in as quickly as 21 days with swift movement on title searches and other paperwork, so get your ducks in a row well in advance with items like mortgage pre-qualifications and employment history.
3. Look for properties that have been on the market for a while, 90 days or longer. Unlike the first suggestion, here, a low-ball offer has a higher probability of success. Yes, there may be issues (which is why the home may have languished), but they could also be priced too high relative to surrounding homes. In these situations, sellers are desperate, and as a result, they are likelier to be open to lower offers simply because they have run out of time (often because they are also in the midst of taking on a new property and their financial situation demands that they get rid of their existing property, now).
4. Be on the lookout for homes that are listed “under market.” Yes, even in today’s explosive real estate environment, these properties can be found — but you will need to do a little more analysis. In a tight market, some people will list their houses low. The important thing for a buyer to remember is to put in the best price you can offer, even if it means going $50,000 to $80,000 above the listed price. As you might expect with properties in the $500,000-plus range, you will have to put forth even higher offers. Again, this is what a buyer needs to incorporate into their home buying calculus during this unusual real estate situation brought on by what appears to be a dramatic paradigm shift in the way business will be done moving forward.
5. Get an appraisal contingency. An appraisal contingency gives you a little leverage after the offer is made in that it allows you to ask for a price reduction that brings the final price closer to an appraised value. Also, having a home inspection will provide further leverage — so do not avoid it. If a certified inspector discovers serious issues with the state of the home, it will be to your advantage in the final negotiation of the price.
While I have reduced the list to these powerful five, your real estate advisor can offer additional strategies. The most critical thing to know in today’s real estate environment is that it pays to be on constant alert for ways to nab the home of your dreams.