In a seller's market, it is important for buyers to be cautious. There are pitfalls everywhere in a seller's market. Here are a few things to consider.
True Cost- When you buy a home for $300,000, you don't pay $300,000.
There are other cost associated with the purchase of a home that moves your true cost up. Most home purchases will include a mortgage origination fee, a home inspection, an appraisal, pro-rated taxes, upfront insurance payment, utility and cable set up, and maybe private mortgage insurance (if you are putting down less than 20 percent). All of these costs should be figured into your true cost and can run $6,000 to $8,000. This amount should be considered when determining the top of your purchase range.
Neighborhood - The hottest neighborhood in the town you want to live in is already priced at a premium (Think Moses Little or Briarwood). In a good market, adjacent neighborhoods start to become more desirable and gain value. Buyers should seek out those adjacent neighborhoods that provide the same proximity to schools, attractions, etc. and other features that make the first neighborhood hot. Instead of paying the premium today, a buyer can look forward to value growth in the adjacent neighborhood.
Readiness - In a seller's market, multiple offers are common place on well-priced properties. Buyers need to be ready to make an offer quickly, and make that offer stand out. Having a pre-approval letter instead of a pre-qualification letter from a lender can make an offer more appealing. Buyers should have an inspector lined up for short term notice, offer a short inspection window can make an offer stand out.
Buyers’ brokers should ask questions to find out what the seller would find desirable in an offer-a quick closing, a later closing date, a rental option, etc. and incorporate that into the offer. Anything that makes the buyer's offer stand out from other offers.
Overreach - Buyers can get caught up in a multiple offer situation. Bidding wars can get heated. Paying a premium for a home that may have to be sold in the next five years. It will not be a seller's market forever. Paying a premium may also move a monthly payment beyond a buyers comfort range. Always set a bid ceiling and stick to it. Offering too much for a home because of multiple bids may also lead to appraisal issues later. Avoid buyers’ remorse, appraisal issues, and resale problems by overpaying in a seller's market.
Quality - If a buyer is considering buying new in a seller's market, particular attention must be paid. Busy builders are adding new crews, and supervisors are spread thinner. This leads to less experienced laborers with less supervision. Corners may be cut and lower quality materials may be used. Buyers should consider hiring an independent inspector to oversee construction (about $500). Using a reputable, established builder can save grief later. The willingness and ability of the builder to stand behind the work done should be an important consideration when buying new construction.
Buyers that keep these things in mind, should survive a seller's market well. Using an experienced real estate professional is always recommended when making the most important purchase of a lifetime.
Rick is a realtor, real estate author, and long time Windham resident. You can reach Rick with any of your real estate questions or needs at Rickyost63@gmail.com