Buying a home or condo in this real estate market is like nothing I have ever seen. Despite what some people might be saying, it is 100% possible to be successful if you go into the process with a plan and the right expectations.
The number one thing you need to understand is this is a sellers’ market. Actually, it’s more than just a sellers’ market, it’s a severe sellers’ market. There are very few homes available for sale to choose from and there is no shortage of buyers so expect major competition from other buyers who want to buy the same house you do. That leads me to my second thing you should know.
Expect other buyers to be trying to buy the same house you want to buy. You may have heard the term bidding war or multiple offers. All this means is there are several qualified buyers trying to buy the same house. As you can imagine, this gives the seller of the home major leverage. They pretty much get the price they want and the terms they want. Be prepared to make concessions.
More Concessions to the Seller
The third thing you should know is expect to make seller concessions you might not normally have to make in a balanced market. A great example is something we are seeing a lot of is what’s called an appraisal contingency waiver. Let’s say you offer to buy a sellers home for $550,0000. During negotiations, the sellers informs you there are 7 other buyers trying to buy the same home. You decide to up your offer to $600,000 in an attempt to outbid the other buyers. Usually, not always, but usually you would have what’s called an appraisal contingency in place to ensure for yourself and for your lender, if you are planning to use a home loan or mortgage, to ensure the home is actually worth $600,000, at least according to the appraiser that appraises the home. An appraisal contingency waiver forfeits that contingency and you are responsible for the difference if your home does not appraise for $600,000. Your lender for the mortgage will only lend you the money up to the appraised value. All the extra cash is up to you to make up. In this case, if you refuse you risk losing your earnest money deposit.
Viewings are Fast
The fourth thing you should know is you might not get to spend as much time in your prospective home as you would like. Here in San Diego, for popular homes you get 15 minutes to look around with your agent tops. It doesn’t matter if the home is 1,200 square feet or 4,000 square feet. If there is a buyer party scheduled after you, move quickly and efficiently because there is a line of buyers waiting for you to finish so they can get in. It’s a crappy situation I know but the reality of so few homes for sale and so many buyers looking to buy.
Homes Sell Quickly
The fifth thing you should know is you need to get in quickly to see any home you might be interested in. Homes are selling on average 20 days. That is the average. The reality is the best homes (I imagine you want one of the best homes) are selling in a matter of days. This goes for just about every price point. I’m not kidding you, I just went through a bidding war on a $2,500,000 house in Poway here in San Diego. There were 6 offers in total all received in 5 days on market. Craziness.
Submit Offers to Sellers Quickly
The next thing you should now is you need to be prepared to make an offer quickly. Meaning make sure you talk about the purchase contract with your agent well in advance before you ever step foot in a house. You don’t have the time in most cases to go over the documents once you find a house you love. You need to know what your signing well in advance. Every second counts in getting your offer in fast.
Sellers Might Be Slow to Respond
The next thing is to expect to wait for a response from sellers in many cases. Home sellers are taking their time to receive offers in order to get the highest and best offers they can. It sucks but as a buyer you might have to wait 3 days, 4 days, 5 days or more to get a response on your offer. Buying a home can be such an emotional ride so prepare for this.
Be Prepared Emotionally
That leads me to number 8 which is prepare yourself emotionally. The reality is you might have to submit more than one offer for a home. You might submit an offer giving a seller everything they want and the seller still picks another offer. The reality if the sellers have a pile of offers so yours is not going to be selected every time. It’s easy to fall in love with a home so just prepare yourself so you are not completely devastated and discouraged when you have to submit several offers to finally get into the home of your dreams. Just remember, things happen for a reason.
Understand the Documents and Contract
Number nine is going to be understand what you are offering and signing. It can be easy to start singing things electronically and not paying attention to what it is you are signing. For example, Some people are getting desperate and are sending in what’s called a non-contingent offer. If that is case, no matter what happens during your due diligence period (where you perform the home inspections, the appraisal happens, the loan approval, that kinda stuff) not matter what happens, if you need to withdraw from the deal, your earnest money deposit funds are most likely forfeit to the seller. Meaning let’s say you are in contract to buy a $800,000 home. You deposit can be anywhere from 1-3%. Let’s say it’s $16,000 or 2%, that means if something goes sideways and you need to bail on the deal, that sellers is most likely entitled to your $16,000 right before going into contract with the next buyer in line. Be careful and understand everything you sign. It can get ugly.
And number ten is stay focused on the task at hand and remember why you decided to buy a home in the first place. Whatever that reason might be don’t let the state of the current market stop you. Stay focused, be persistent, show some grit, and you will ultimately be successful. Is this market difficult to be a buyer in. Yes. Is it impossible? Not even close.