6 Tips for Buying an Affordable Home in the Current Hot Market
The COVID-19 pandemic created a housing market frenzy that’s still going strong in 2022. You plan to brave the chaos and attempt to buy a home this year, but you know it probably won’t be easy.
There is some good news — the median home sales price is expected to rise 2.9% in 2022, which is much slower than the 12% realized in 2021, according to Realtor.com. Inventory is also expected to increase by an average of 0.3%, marking a notable change from the negative 18% experienced in 2021.
Ready to start your search? Here’s some advice to help you stay calm, competitive and focused throughout the buying process.
1. Get Preapproved Before House Hunting
When starting to look for a home, one of the first things you should do is get preapproved for a mortgage, said Bill Gassett, a realtor with Maximum Real Estate Exposure, based in Hopkinton, Massachusetts.
“The preapproval process will give any seller confidence that you will be able to complete the purchase and allow you to know your budget,” he said.
Additionally, he recommended checking your credit score to make sure there aren’t any errors.
“A credit reporting error can significantly impact your score,” he said. “It could mean the difference between getting a more favorable interest rate.”
2. Shop Below Your Budget
In theory, it makes sense to search for homes listed in your price range, but that isn’t the best strategy in a competitive market.
Glen Pizzolorusso, a licensed associate real estate broker with Compass in Fairfield County, Connecticut, recommended shopping 20% under your preapproval amount.
“Most properties will sell for over the list price, so you want have buying power when you go to make an offer,” he said.
3. Don’t Dawdle on Your Dream Home
Buying a home is quite likely the largest purchase you’ll ever make, so wanting to think long and hard about it makes sense. However, you can’t ponder it too long in this market.
In 2020, homes across the U.S. were on the market for an average of 25 days, according to Zillow. However, some cities had much faster sell times, including Columbus, Ohio, at eight days and Denver at nine days.
While you shouldn’t wait to put an offer on a house, seeking out properties that have been sitting on the market for a while can help you save money. This is because home values tend to depreciate the longer a home stays on the market, said Ron Wysocarski, a real estate broker based in Port Orange, Florida.
He recommended working with your real estate agent to create a list of homes you like that have been on the market for more than 40 days but less than 90 days.
“Out of that list, you can find any good homes and surely their price would be also considerably low,” he said.
4. Beef Up Your Earnest Money
If you’re not familiar with the term, buyers are typically required to put down earnest money — i.e., a good faith deposit — at the beginning of the escrow process, to show the seller they’re serious about making a deal. When escrow closes, the funds are either applied to your down payment or closing costs or you can opt to receive the money back.
In most markets, earnest money averages 1% to 3% of the purchase price of the home, according to Chase. However, when multiple buyers are interested in a home, it’s not uncommon for the seller to require a good faith deposit of up to 10% of the purchase price.
Of course, you can also take it upon yourself to offer more earnest money than necessary, to make your offer stand out to the seller. If you don’t currently have enough cash to do this, consider hitting pause on your search until you save up enough to put this strategy into action.
5. Make Your Best Offer First
In February 2022, there were an average of nearly five offers for every home sold in the U.S., according to the National Association of REALTORS.
Therefore, Lambros Demos, a real estate agent with Royal LePage Realty Plus, based in the Greater Toronto Area, advised keeping your offer clean, strong and simple.
“When sellers have a number of offers to choose from, they do not want to deal with contingencies or trivialities,” he said. “Also, go in strong with your best price because there may not be a chance to improve.”
He said this is another reason why getting preapproved is critical.
“Your chances of success diminish greatly if you have a contingency for financing,” he said.
Another way to stand out, Vicky Noufal, owner of the Platinum Group Real Estate team at Pearson Smith Realty, based in Leesburg, Virginia, recommended offering the seller flexibility.
“For example, if a seller wants to close the deal quickly and you don’t have an issue with that too, then you will automatically go up on the seller’s preference list,” she said. “You can even negotiate on the price then, on the basis of the flexibility that you are offering.”
6. Expect To Make Multiple Offers
In 2021, more than half — 56% — of first-time homebuyers made five or more offers before purchasing their current home, according to Opendoor. Even more frustrating, 27% put in 10 or more offers.
Therefore, it’s important to start the process hoping you’ll get the first home you bid on, but realizing that might not be realistic. Managing your expectations from the start will help you avoid getting too discouraged if you lose out on a few properties before finding the one.
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