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Mortgage NewsBlog posted On July 26, 2022
Making offers higher than the asking price was routine during the pandemic. Because the market was so competitive, most people who wanted to ‘win the home’ would end up paying much more than the listing price. But as home buyer demand cools and home inventory climbs, overbidding will become much less common. If you’re looking to buy now, remember this isn’t the housing market from two years ago. You might not need offer more than the asking price, and here are four tips that can help you avoid it.
Bidding wars have been all too common over the past two years. Many buyers grew accustomed to making offers higher than the sales price so that they could outbid other offers. However, the number of homes involved in a bidding war hit a 15-month low in May. Price cuts are increasing. Demand is cooling. It’s not the same housing market as 2020.
While some houses are still getting multiple offers, it’s much less common. In less competitive areas you don’t need offer as much. “The key to being successful in a changing housing market is to study and understand it,” says Nicole Reuth, real estate agent in Denver. “As the market shifts, buyers need to focus on their local market rather than getting swept up in national trends.”
Existing homes, which make up roughly 90% of home sales, saw an inventory increase of 9.6% from May to June – up to a 3-month supply at the current sales pace. Homes are staying on the market for longer. You have more time and more options to choose from. But remember, with home prices and mortgage rates rising, you might not find your dream home at an affordable price. Instead, consider homes that you could renovate or improve. We offer several types of renovation loans, including loans that can help improve your home’s energy efficiency.
At one point during the COVID pandemic, sellers were able to list their homes at prices well above their market value. But as more homes are becoming available and fewer buyers enter the market, sellers are becoming more realistic about their sales prices. According to Redfin, a little over 22% of homes for sale during the four-week period ending June 11 had a price drop.
So don’t assume that you need to make an offer drastically higher than the sales price. If you’re concerned about buyer competition, you can use an escalation clause, which will automatically send your bid higher if someone initially outbids you.
Waiving contingencies was another popular way to strengthen offers during the pandemic. While it may have been successful, it also has a downside. Waiving contingencies like a home inspection can be risky. Home inspections are typically done before a sale so that an owner can pay for any updates that need to be completed in the house. If left untreated, they can cost thousands of dollars down the road, likely costing you more than you bargained for in the overall cost of the home. Waiving appraisals can be risky as well. Appraisals tell you how much the home is worth, so you could end up needing to take money out of your down payment savings if your home is valued lower than the sales price you accepted. “Instead of looking at a 20% down payment it ends up being more like 10% down,” says Chris Grimes, team leader of Partners in Grimes at RE/MAX Homes and Estates in Nashville. “They end up having to pay a higher interest rate.”
Navigating the housing market on your own might be tricky. If you’re looking for a reliable real estate agent, let us know. We would be happy to share our trusted recommendations!
