Tips for Buying a Home in a Competitive Market
You may not have planned to jump into a red-hot real estate market as a first-time homebuyer. But if you're ready to make the move from renting to owning, a competitive offer can boost your chance of success. Even when increasing your bidding price isn't possible, there are additional tips for buying a home that can strengthen your offer.
When you're buying a home in a competitive market, it's essential to have a few different arrows in your quiver. Certain strategies may work better than others—depending on the local market and your current finances—and you may need to try several tactics before finding a homebuying offer strategy that works. Here are a few techniques that could give you an edge.
Set your price point
Before you look at what's for sale, it's always a good idea to calculate how much you can afford. Having a set budget will help you resist the temptation to consider properties listed above a certain price. Talk with a mortgage banker to discuss a preapproval amount so you can determine your homebuying budget and increase your confidence when bidding on a home.
Check your credit history
Your credit history is a big factor when getting approved for a mortgage. Lenders tend to favor borrowers with a history of regular, on-time payments to creditors. Knowing where you stand by checking your credit score can increase your bargaining power.
Choose your lender carefully
It's easy to select the first lender willing to approve you for a mortgage. However, it's important to shop around for the lowest rates and best options for your financial needs.
Getting preapproved for a mortgage is the first step toward becoming a credible potential buyer in the eyes of a seller. Gain an edge on other buyers by taking steps to secure financing before making an offer.
Work with a real estate agent
A real estate agent will narrow down homes available for sale in your price range. If you don't have an agent in mind, ask around for referrals or research agents online. You should always feel comfortable asking your agent for advice. They should be familiar with the local market and show an understanding of buying activity in your preferred neighborhoods.
That said, as a first-time buyer, you're your own best advocate. While working with an agent, you can still use your personal network to find homes before they go on the market. If you're comfortable sharing information, you could post about your home search on social media, put letters in mailboxes or join online community forums near your top-pick neighborhoods to get a sense of the local market. Then, if you do find a good lead, your agent can help you with next steps.
Compete on factors other than price
Price isn't the sole deciding factor in a multi-bid situation. Sellers don't want to accept a high offer only to have a deal fall through, which requires them to start the entire process again. If your bid isn't the highest, you can remain competitive by relying on non-pricing strategies. Each of these strategies involves its own risks, though, so make sure you understand the implications and feel comfortable before moving forward.
Contingencies are items written into an offer that allow the buyer to exit the purchase under certain conditions and receive their initial deposit back. Sellers may accept an offer with limited contingencies, even when the buyer is offering a lower price. Depending on your circumstances, you may consider limiting some contingencies in your offer.
- Sales contingency: As a first-time buyer, you won't need a sales contingency because you don't have to sell another home. This might give you a leg up if you're competing with buyers who are selling other homes.
- Mortgage contingency: If you're preapproved or paying cash, removing the mortgage contingency can make your offer more attractive to sellers.
- Home inspection contingency: Consider limiting inspection contingencies only when you feel confident and knowledgeable enough to handle potential issues that may arise. You should also leave room in your budget for possible repairs.
- Appraisal contingency: This contingency allows buyers to exit the purchase if the home isn't appraised for a certain amount, which is typically the sales price. If you're paying cash, an appraisal contingency may not be needed. But if the appraisal is lower than the sales price, your ability to secure the proper amount of financing may be affected.
Increase your initial deposit
One way to strengthen your bid without increasing the price is to offer a higher initial deposit. However, if the seller accepts your bid and the sale falls through, they may be entitled to keep this deposit money. You can also strengthen your buying position with a larger down payment along with a mortgage preapproval.
A personal touch
Sending a letter to homeowners in preferred neighborhoods may work if the timing is right and sellers are looking for a quick offer. But in the most desirable neighborhoods, homeowners may receive these appeals frequently, making it difficult for a first-time buyer to stand out. Although this is a popular homebuying offer strategy, you should discuss it with your agent first. Depending on what information is included in the letter, you may unwittingly open yourself up to liability or discrimination.
As home prices continue to rise, a fixer-upper may be another strategy for buying into a neighborhood with heavy price competition. Homes in need of cosmetic work or additional repairs may not sell as quickly. They may also sell closer to the asking price, giving first-time buyers more of an opportunity to compete. If you choose to buy a fixer-upper, be sure to allocate a portion of your homebuying budget for renovations and repairs.
Bringing it all back home
Still have questions about buying a home in a competitive market? Sit down with a knowledgeable mortgage banker in your area for more clarity on preapprovals, the homebuying process and putting together a strategy that makes your offer stand out.
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This information is provided for educational purposes only and should not be relied on or interpreted as accounting, financial planning, investment, legal or tax advice. First Citizens Bank (or its affiliates) neither endorses nor guarantees this information, and encourages you to consult a professional for advice applicable to your specific situation.
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