The good news for today's home buyers is that we've gone back to a more traditional market, after being dominated by investors and cash sales for several years.
Nearly 68 percent of homes sales are to individual buyers today, compared to 53 percent in 2011 when investor/cash sales reached their peak. This means more opportunities for first-time homebuyers and growing families to make an offer on a house they can afford – provided they have the patience and know-how.
At HomeSteps®, the real estate sales division of Freddie Mac, we evaluate thousands of offers a year. This has given us a lot of insight into what to do and what to avoid when buying a home, which leads me to four important tips to keep in mind when making an offer in today's market:
Understand how much you can afford. While it's not nearly as fun as house hunting, fully understanding your finances is critical in making an offer. It will not only help you determine your price limit, but it will also help you understand if your budget can cover a new roof or furnace in the home you may be considering. You also need to understand whether or not you are financially prepared to cover monthly expenses for general upkeep and utilities, which can run hundreds of dollars per month.
Act fast. Even though there are fewer investors, the inventory of homes for sale is also low and competition for housing continues to heat up in many parts of the country. For example, in Denver about half the homes listed sold in 30 days or less in April 2016. So the sooner you can make an offer, the better. Getting pre-approved is key if you know you'll need a mortgage to buy since it will help you act fast and make a confident offer.
Make a solid offer. Your strongest offer will be comparable with other sales and listings in the neighborhood. A licensed real estate agent active in the neighborhoods you are considering will be instrumental in helping you put in a solid offer based on their experience and other key considerations such as recent sales of similar homes, the condition of the house and what you can afford. Always ask the seller for a home warranty as part of your initial offer. That way, you'll be covered if appliances or mechanicals fail or break down after you're in the home.
Remember, in a competitive market, your offer may be one of many. To make yours stand out, you may want to include one thing in your offer to set you apart from the competition – like a letter to the seller or the ability for the seller to rent back their home for some period of time after closing. This can be your chance to connect beyond just dollars. Talk to your agent about other ways to make your offer resonate on a more personal level.
Be prepared to negotiate. It's likely that you'll get at least one counteroffer from the sellers so be prepared. The two things most likely to be negotiated are the selling price and closing date. Given that, you'll be glad you did your homework first to understand how much you can afford. Your agent will also be key in the negotiation process, giving you guidance on the counteroffer and making sure that the agreed-to contract terms are met.
Once you've signed the purchase contract, always get an independent home inspection, so you know the true condition of the home. If the inspection uncovers undisclosed problems or issues, you can typically re-negotiate the terms or cancel the contract.
If you're making an offer on a real estate owned (REO) property, keep in mind that when you are buying a home from banks and institutions, you will be more successful if you make your best offer first. While they can and will negotiate, they typically employ local pricing strategies with the goal of selling their homes at or near current fair market value. In addition, you need to take into consideration that most REO homes are sold "as is" so it's important to do your due diligence once you've signed the contract.