There’s a grainy video, taken from a cell phone in Raleigh last month. Perhaps you’ve seen it. Millions have watched. It went viral, both in North Carolina and throughout the country.
The photographer, a real estate agent, is standing on the porch of a home that is for sale. Her camera is not facing the property that her clients are about to walk through and perhaps even submit an offer on. Instead she has it pointed towards the street where a line of cars are parked and dozens of people are walking towards the home. They are all buyers in a competitive market and only one of them is going to get this deal.
The scene is utter chaos- polite chaos- but chaos all the same. Nothing gets out of hand or physical. There’s no shoving or pushing, no one gets trampled, but everyone is anxious. They want to be next in line.
And while the video is unique to this one home, similar scenes are playing out all over. Just For Buyers Realty agents have experienced it here in the Cape Fear region. Even though we schedule individual showings for each client, it is not unusual to arrive at a home where other buyers are waiting to get inside. This is especially true for anything with an asking price of $350,000 or lower. There are simply not enough homes in that price range to meet the current need.
That means we are in a seller’s market. One of the most competitive markets we’ve ever seen. It won’t last forever, but the seller has the leverage right now. Eventually things will turn around towards the buyers again, but no one can tell you when. Could it happen six months from now? Maybe in a year? Could it be longer? And if you are in the market right now and need a place to live right now, waiting is probably not an option.
So how do you survive in a seller’s market? Here are some tips from the Just For Buyers Team.
Get pre-approved
This is advice we give to our clients during any type of market. Even when the buyers have the upper hand you want to get pre-approved so you know exactly what you can afford. Don’t waste your time looking at homes that may be out of your price range.
In a seller’s market like this one, simply put, you don’t have time to spare. Homes in the competitive price range are going under contract within 24 to 48 hours. If you’re not already qualified with a mortgage broker, there simply is not enough time to do the paperwork and go through the process before the home of your dreams goes under contract. Get the financing in order first and then start looking.
Make a decision quickly
This tip again is all about timing. In a perfect world, we would recommend that buyers visit a home at least twice before putting in an offer. You will notice things on a second visit that you didn’t notice on the first and that could impact your decision one way or the other.
In this market, if a property checks all the boxes on your list, you’re going to want to put in an offer the same day you viewed it. In some cases buyers will walk in with an offer already written and ready to go. Being the first offer submitted is no guarantee that it will be accepted. But you don’t want the property to go under contract while you’re still trying to make up your mind
The type of loan you qualify for will have a lot to do with your offer being accepted
If you have a government backed loan give yourself more time to search.
While we work with several investment and cash buyers, the vast majority of our clients are folks who have qualified for a mortgage with plans on paying off a purchase in 15 to 30 years. The length of your mortgage is irrelevant to the seller because they get their money all at once.
What they may care about is the type of loan you’re bringing to the table. Loans that are backed by the federal government will cause the home to go through very thorough inspections. This is true of VA and FHA loans.
For instance we know of somebody who purchased a condo with a FHA loan before the market boomed. The property, in one room, had flaking popcorn ceiling. It really wasn’t an issue for the buyer because he was planning on getting rid of all the popcorn once he moved in. It was however an issue for his mortgage company. They would not approve the loan until the seller fixed the small patches. Back then they were willing to make the minor repairs. In this market they would likely have refused and the deal could have fallen through.
FHA and VA loans are wonderful programs that have made homeownership accessible to millions of people. Our big advice to such clients these days is simply to start your search early, knowing that you are competing with other buyers and loan programs that may not have such strict requirements on the sellers or their properties.
You have to think of the listing price as the minimum amount you are going to pay
This tip applies to buyers in the very competitive price range. The more expensive homes are still very competitive, but might get fewer offers. Therefore, you have a chance to come in near, or even under asking price, and still have an offer accepted.
However if your home is under $500,000, you are probably going to have to pay at least asking price or higher.
This simple fact continues to be one of the toughest things for buyers.
We have conducted a study of all the homes that have sold in the last three quarters, going back to last summer and looking at the first two and a half months of 2022. Click here to see how many homes are actually selling above asking price in the tri-county area.
Our advice is you do not want to shop for a home that is on the high end of your budget. Assume that any home listed will probably go for 5 to 10% more than the asking price. Therefore you want to start searching anywhere from $25,000 to $40,000 under the approval amount. This may give you the flexibility to make a competitive offer over the asking price.
Offer more in Due Diligence
Buyers who are moving to North Carolina may not be familiar with the concept of due diligence money in a real estate transaction. These are funds that are offered as a way for the buyer to show good faith during an inspection period. Like earnest money, it is paid out of the buyer’s pocket. The check has to be written shortly after the home goes under contract.
Due diligence is typically NOT refundable. Therefore if you walk away from the deal for any or no reason during the due diligence period, other than the seller breaching the contract, you may not recover these funds. However, if the purchase goes ahead the due diligence money is taken off the price of the home.
Increasing the amount of due diligence can be a great way to make your offer more attractive. It shows the seller that you mean business. This is certainly a big risk to undertake and it should not be done lightly. If your funding falls through or if the house doesn’t appraise, or if an inspection comes back with several expensive projects, the deal could fall through and the seller gets to keep this large chunk of cash that you offered.
We tell buyers that if you’re in love with a property, that this is the one, your funding is secure and you’re capable of meeting a gap between the sale price and the appraised value, then increase this amount up front. If you end up buying the house it will not make any difference to your purchase price in the end and it gives you a better chance of getting your contract approved.
Offer a shorter Due Diligence Period
The Due Diligence period is always a nervous time for sellers, so the shorter the better. Your buyer’s agent can help you find a home inspector that moves quickly. The key is making sure the appraisal gets back in time. Make sure the lender and your agent are working as a team to help get you in your house.
Be prepared to come up with cash in case the home doesn’t appraise for above asking price
As stated earlier, when homes go for above asking price sometimes they do not appraise for that higher amount. Mortgage companies will only give you a loan for what the home is worth. Using round numbers if a home is listed for $300,000 and you offer 320,000 but it only appraises for $310,000 then the buyer is going to have to come up with another $10,000 to close that gap.
If you can’t come up with the money your mortgage will not go through and the due diligence money will be lost. The good news is as homes sell this quickly and prices are dramatically going up, the appraised values are also rising. Still, when you are offering above asking price be sure you can cover the difference if the appraisal doesn’t match up.
Don’t waive the inspection but…
This is one of our Cardinal rules for our clients: Never waive the inspection.. You need to know exactly what you are purchasing. If a home has foundation issues or termite problems you need to know that ahead of time. However in a competitive market, some buyers, as part of their offer, will inform the sellers that they are willing take care of any minor problems that come back on the inspection report.
The days of presenting a seller with a long list of things that need to be fixed (like our earlier example of the popcorn ceiling) and expecting them to pay the bill for the repairs are rare in this type of market. Obviously if there is a major issue they should still be held accountable, but on the smaller stuff, you could let them know up front that you will be taking those items off their plate.
We suggest listing a specific dollar figure as part of your offer. You informed the seller that any repairs underneath this dollar value will be handled after the sale is complete, but anything above it might need to be handled by them.
Here are where things get tricky. Again, if you have a government backed loan it may NOT go through even if the repairs are only minor issues. Also, if you have put in a high due diligence fee and major problems come up, the seller may not have an incentive to work with you. They know if you walk away from the deal that they can keep your due diligence money, list the home again and probably still have it under contract (even when they reveal the needs your inspection discovered) within a couple of days.
With inventory low prioritize your wants, and cut those things that you can do without
There is a huge difference between wants and needs. You should never give up on your needs. If your family needs a four bedroom home, do not settle for a three bedroom home.
But when it comes to other desires, you really have to ask yourself how important are they? How badly do you really want a screen porch? How badly do you really want a fireplace? Those are just two examples. Both certainly add a great deal to the quality of life but here are the numbers: As of this writing in New Hanover County there are currently 83 homes that are listed for under $400,000. Only 18 of them have a fireplace and only six of them have a screen porch. If you’re looking for a house with both, your search is limited to just three properties. In a competitive market do not let your “wants” lower the only small inventory even further.
Don’t throw in the towel if your first offer isn’t accepted
In this market endurance is key. You have to start the process understanding that you are most likely going to have to put in a few offers before you get a home under contract. No matter how many warnings and advice you get ahead of time, buyers can never realize the nature of this market until they lose out a couple of times. Unfortunately these days, being rejected is part of the process. Half of the battle is staying positive.
Don’t be afraid to walk away
Yes, this is a competitive market. Yes, the seller is holding most of the cards, but that doesn’t mean that you should accept a bad deal.
For example, if the seller wants to live in the home after the closing and you can’t manage it, don’t accept the deal.
The ability to walk away from the table remains the strongest play a buyer has these days. If the terms proposed by the seller don’t work for you then get up and walk out. Let someone else get the bad deal. Even with low inventory there will always be more homes that come on the market. Waiting for a better deal is always better than rushing into a bad one.
Now more than ever you need an Exclusive Buyer’s Agent
Obviously as an exclusive buyer’s agency we are a little biased on this point, but we think it goes without saying. These are tricky waters and you really need the help of someone who knows how to navigate them. Having an Exclusive Buyer’s Agent can make all the difference in the world. Make sure to find an agent who is patient, who is willing to write offer after offer until one gets accepted, and who’s going to speak honestly to you about your expectations and needs. At times like this, you need an advocate, you need an expert and you need a friend.