For first-time, move-up and downsizing buyers, 2020 has been a challenging year. While most housing markets have had low numbers of homes for sale for several years, in 2020, many would-be sellers pulled back from listing their homes over concern about the impact of Covid-19 on their health and the economy. After a pause in the early stage of the pandemic, buyers came back eager to change their housing situation and take advantage of low mortgage rates by the time summer arrived. But many homeowners were more likely to take a wait-and-see approach or to renovate their property to suit their needs rather than sell.
The homes that are available sell fast – many in just a few days – and median sale prices have been rapidly increasing across the country. The median sale price for existing homes rose by 12% during the third quarter of 2020 to $313,500 compared to the median sale price in the third quarter of 2019, according to the National Association of Realtors. While median sale prices increased in every one of the 181 metropolitan statistical areas that NAR measures, some experienced price increases of as much as 27% from the third quarter of 2019 to the same period in 2020.
For buyers, the rapid pace of the market and quickly rising prices means that you must be more prepared than ever to make a decision and to negotiate and finance your home purchase. The help of a real estate agent is more essential than ever to find properties as soon as they’re listed for sale and to understand local market dynamics. Working with an agent may even help you find out about homes for sale before they go on the market, helping to get a jump on competition.
12 tips for buyers in a competitive market
When you’re thinking about buying a home, it’s important to take the time to do some personal preparation as well as to line up your support team for the transaction. Consider these steps to help you navigate a competitive market:
- Check your credit. The higher your credit score, the lower your interest rate on conventional financing. View your free credit reports at www.annualcreditreport.com and check your credit score with a credit card company or your bank. FICO scores of 760 and above are eligible for the lowest mortgage rates.
- Gather your cash. While loans with down payment requirements as low as 3% to 5% are available, you’ll need cash for even a small down payment, closing costs and moving expenses.
- Determine your ideal housing payment. Only you know your personal budget and comfort level with your housing expenses, which will include principal and interest on your loan, taxes and homeowner’s insurance. You may also have to pay for mortgage insurance and a homeowner’s association fee.
- Choose your Realtor. A Realtor experienced in your local market and your price range can provide you with advice on your housing options and can arrange for instant alerts when new properties that may fit your needs come on the market. You’ll want an agent who can advocate for you if a bidding war begins.
- Consult a lender. A lender can provide you with information on loan options and advice on what you can do to qualify for the lowest rates, such as make a larger down payment or improve your credit score. If you don’t have a lender, ask your Long & Foster Realtor to introduce you to the team at Prosperity Home Mortgage, LLC.
- Get fully preapproved for a loan. Sellers today expect their buyers to have their financing in place. If you face competition from other buyers, a solid loan preapproval is essential to have your offer considered.
- Narrow your priorities. In today’s market, you need to move quickly to make an offer when you see a house you like. It’s easier to decide when you know your absolute must-have items in the house or community and recognize where you may be able to compromise. It’s always difficult to find exactly what you want at your price range and even more challenging when there are so few homes on the market.
- Consider widening your geographical search. If you are likely to work from home more often in the future, you may want to look at areas that you wouldn’t have considered in the past. Your Realtor can help you broaden your search and let you know about communities that might meet your priorities that you haven’t visited.
- Evaluate a fixer upper. While many people want a home in excellent condition, you may want to check out a property that needs some cosmetic work, so you have less competition from other buyers. Just be sure to ask your Realtor for advice on what needs to be done, possible costs and potential contractors. You can also ask your lender about renovation loans.
- Shop virtually first. You can learn about what you can buy at different prices ranges in various areas by shopping online and watching virtual tours. This can educate you about your market and narrow the list of places to see in person.
- Make an educated but fast decision. The more you know about home values and what’s available in your area, as well as understanding your own preferences and budget, the easier it is to decide to make an offer. Your Realtor can advise you on an appropriate offer and share insight into local market conditions.
- Be ready for competitive bidding. To avoid overpaying for a property in a bidding war, be prepared with your budget and consult your Realtor for trusted expertise. While price is important, you may also be able to get an offer accepted if you can be flexible on a settlement date or open to an “information only” home inspection.
If you’ve made the decision to buy a home, Long & Foster Real Estate offers multiple divisions that can help you find, finance and insure your home. Get started at longandfoster.com.