In this crazy seller’s market that won’t seem to settle down, it can be very daunting for buyers to purchase a home; so much so that many have just given up and resorted to renting. Unfortunately for the consumer, average rent prices have gone up by at least 50% or more! So, the first piece of advice – don’t give up! Purchasing real estate is one of the best investments you can ever make, but making smart choices is key. Education is extremely important as well, so having an Experienced Buyer’s Agent can help you save time and money.
Below are just a few tips for buyers that have been compiled based on market conditions and observations over the past 2-3 years. Having been in real estate for 22 years, I can definitely say recent years have been somewhat unique!
- Don’t offer more than list price right at the start. Everyone is probably familiar with the term ‘Escalation Clause’ by now and if you’re considering purchasing a home while the market is hot, it is a very effective tool to keep your budget in check and not get drawn in by a bidding war. It requires you to set a limit for what you’re willing to pay and gives the option to go up in increments of $500 - $1000 over any competing offers, rather than guessing what anyone else might be offering and trying to beat that price.
Also, don’t assume that there will be a bidding war. I have had so many offers come in on our listings above asking price (some as much as $30,000) and it ends up being the ONLY offer. If we receive any offers while the property is active, we must notify agents, but we still receive escalated offers. Be especially alert if you’re submitting an offer directly to the listing agent without using buyer agent representation.
- Don’t waive the appraisal contingency. This has been an alarming trend, at least here in N. Alabama. Maybe that’s normal in luxury or vacation home purchases, but not for typical buyers that are obtaining financing. Not only are buyers having to cover most or all of their closing costs, but rising interest and insurance rates can add a hefty amount to your purchase too. We have seen this happen the most with homes that have swimming pools, which is maybe the only exception I would think is feasible (within reason) because, since Covid shut everything down 2 years ago, pools are in high demand! Currently, an average pool construction cost is $60-100k with a long waiting period. Again, make sure it’s in your comfort zone and you have the cash to offset the appraisal gap. Another exception to this would be if a property is underpriced at the start. Your agent should be able to give you a very good estimate of what the home should appraise for based on recently sold properties in the area. If your top escalation offer is within a comfort level for you, potentially costing you an extra few thousand dollars out-of-pocket, then adding “purchaser waives appraisal contingency” looks very appealing on an offer and could very well get you the winning bid.
- DO NOT waive inspection contingency. This is especially important on older or remodeled homes, unless you’re an experienced remodeler, builder or otherwise very familiar with the inner and outer workings of a house. A 1-3 year old home, or one that was previously purchased within a couple years where sellers offer to let you look over their recent inspection report might be ok. You’ll always want to have the option to back out if you don’t feel comfortable and the inspection contingency is your insurance.
- Lease Purchases are not as good as they seem, period. They’re becoming more popular again, as they were during the last market downturn that started in 2007/2008 and may seem like you’re only hope to purchase a home, but it can also have many pitfalls for buyers. I had a neighbor back in 2008-2011 that had several residential and commercial rental properties that he was contracting for lease purchases and he redeemed all of them at least once (some several times). Unless the contract is structured with protections for the buyer, you can miss one payment and lose all accumulated equity (down payment plus any principal accumulated from monthly payments).
I know if you make it through this entire article, you’ll have questions. We encourage anyone to call us anytime for advice, based on your individual circumstances, and at no cost. Our expert agents have valuable input that can help you make informed decisions on your next home purchase!