Should I Buy a House Now?

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Real Estate

Psst…hey, Buyers…Have you heard this market is crazy? Have you gone to open house after open house, scheduled showing after showing, and made several offers only to have them rejected? Ugh! We feel your pain.

We thought things had quieted down, but then we scheduled a showing for a home recently and arrived to find cars lining the street and people milling about in the driveway. We hadn’t seen that in a couple of months. We wondered what was going on since it was a Friday, not the usual day for an open house, and we had scheduled a showing.

We walked inside and found the listing agent looking quite frazzled. She had received so many requests for a showing on the first day that she had decided to just hold the home open. It wasn’t even 2pm, and she’d already received 27 offers, most of them cash.

Oh, no! Not this again. If you’re a buyer trying to exist in this market, you need a timeout. You need a cup of tea, a warm chocolate chip cookie, and some advice from a real estate expert. I’m warning you; you may not want to hear all of this, but it’s time for some real talk.

A doormat that says This Must Be The Place, boots and a potted plany

First, let’s look at some numbers. As I write this on October 5th, there have been 1,151 single family home sales in Pinellas in the last 30 days. Of those, 405 were cash deals, 632 were conventional financing, and 55 were VA loans.

For the sake of satisfying my own curiosity, I looked specifically in the price range of our current buyers, $350,000-$550,000. They’re not all looking in Pinellas, but for simplicity’s sake, I focused on that county. In the last 30 days in Pinellas, there have been 421 single family home sales in that price range. Of those, 124 were cash deals, 277 were conventional financing, and 23 were VA loans.

Here’s where it gets interesting. Of the 124 cash deals, 73 paid at or above ask. 188 of the 276 conventional deals paid at or above ask, and 14 of the 23 VA deals closed at or above the list price. Some of those closings were only in the $1,000 range over the asking price, but one home closed for $90,000 above the asking price.

Now that you know the numbers, here’s our take on the situation.

During the third quarter of the year, we actually worked with buyers in all three camps.

Cash buyers? You’re a formidable opponent for sellers. Yes, while the ball is in the seller’s court, you’re still in the game. Because you can offer a quick close and waive the appraisal, if you enter the multiple offer situation, you’re probably winning, especially if you are willing to offer above the list price.

But what about buyers looking to use conventional or VA financing? Here's how you can stay in the game:

1. Before you submit an offer, your agent should ask the listing agent if there are already any offers on the table (but be forewarned that some listing agents are not authorized by the seller to disclose if there is a multiple offer situation). If the answer is yes, your agent should see if the listing agent will disclose if any of the offers are cash. If they are, it’s up to you to decide if you want to jump in the bidding war, but if you do, you’ll most likely have to play hard ball.

2. To stay in the game, you’ll want your agent to ask the listing agent what the seller’s preferred offer terms are. Here are some examples of what sellers currently want:

-Closing date: Some sellers want a quick close (like if they need to move to a new area for a job), and some need more time (like if they need their home under contract before they can start looking for their next house). Either way, before you commit to a closing date, you’ll want to confirm it with your lender.

In the case of a quick close, the lender may not be able to do it if, for example, appraisals are backed up. In the case of a longer close, you may not be able to lock in your rate past a certain number of days. Also, a lot can happen (i.e., go wrong) when you have a longer closing date.

Bottom line: your lender is the best source to help you choose a closing date.

A doormat that says Home Sweet Home, three potted mums

-Inspection: Some sellers would prefer you just waive the inspection. We do NOT recommend you do this. However, you can have a short inspection period (5 days).

If your agent has a good relationship with an inspector, the inspector may hold a date for you so that when your offer is submitted, your agent can let the listing agent know the inspector is on standby.

Just be forewarned that if a seller goes for the inspection period in this market, they will most likely adhere strictly to the As-Is contract, meaning that you have the inspection, you know what issues there are in the house, and now they’re your responsibility.

-Appraisal Gap: This is a newer preference we’re seeing. Savvy sellers are asking for buyers to submit an offer with an appraisal gap clause. Here’s how it works. A house is priced at $400,000. You offer $450,000. In case the house doesn’t appraise at $450,000, you decide how much of that gap you’d be willing to pay. For instance, maybe you’d be willing to pay $25,000 of the gap, and maybe you’d be willing to pay the entire $50,000 (not to exceed the agreed upon purchase price, of course).

But here is the rub: The appraisal gap is money that you, dear buyer, pay out of your own pocket. So, if you offered $450,000 for a house that was listed at $400,000 and appraises at $400,000, you may have to have an EXTRA $50,000 to bring to the closing table.

Can you do that? Should you do that? Do you want to do that? Would you be mad if you did? Would you be sad if you didn’t? These are the questions only YOU, not your agent, can answer. Well, you and your lender. You’ll want to make sure you are financially capable of paying that gap.

Here are more facts: 300 of the 421 single family homes that closed in the last 30 days between $350-$550,000 were VA or conventional loans. Of those 300 closings, only 98 of them closed below the asking price.

So, what’s a buyer who doesn’t want to or CAN’T pay the appraisal gap to do?

A board says Welcome Home

Do NOT go see a house as soon as it hits the market. Of those 98 homes that closed below the asking price (and let’s be honest, those houses probably already seem overpriced to you), 79 of them were on the market for more than 6 days.

You need to press pause. Take a break from open houses. Take a break from scheduling showings. Hit refresh. You’ve probably felt desperate and started making offers on houses that in a healthier market you wouldn’t have considered. You also probably started stepping out of your comfort zone where the price is concerned. You’re playing roulette with money you don’t have or don’t need to spend on a house you don’t even want!

Then, regroup and get firm on your budget, wants, and needs. Think about the lifestyle you want to live in the house, and keep in mind the lifestyle you want to enjoy outside of it, too. If winning an offer on a house means foregoing summer vacations, a gym membership, or date nights, is that worth it to you?

And when you are ready to start looking again, look for the houses that didn’t go in that first weekend. In this market, a house on the market for more than a week doesn’t necessarily mean there’s anything wrong with it, except maybe it’s overpriced, which works in your favor.

Your house is out there; you just need to be patient.