How to Buy in a Tight Real Estate Market
It’s no secret that the country has seen significant shifts in the housing market, especially as a result of the COVID-19 pandemic. Pre-pandemic, the market was gaining steam and mortgage apps were in development due to popular demand…and then buying and selling was essentially put on pause in spring of 2020. Once the market opened back up, there was high buyer demand, but a low supply of houses for sale. People have found themselves in steep bidding wars when they decide to pursue a home purchase.
The Metro Milwaukee real estate market has been no different—it has remained highly competitive in 2022. Houses are often receiving multiple offers in the first few days on the market, many times well over the asking price. Sometimes buyers are even foregoing inspections.
So, how do we navigate this complex housing market neighborhood?
The Big Three
Katie Wakefield of Firefly Real Estate offers some perspective, with three ways buyers can best prepare themselves:
1. Team Up with a Local Real Estate Agent
Some of the best real estate agents focus on a particular market or two. If you’ve targeted a specific municipality or neighborhood, team up with a local expert. They know the lay of the land—the trends in that area’s market, hidden gems, and the best strategies for making an enticing offer.
It’s also much easier to coordinate home viewings when your agent is local. They may be able to accommodate more spur-of-the-moment viewings—for that house you’ve just gotta go see ASAP.
[How a Great Real Estate Agent Can Help You Buy Your Next Home]
2. Have Thorough Discussions with Your Agent
It is important to have a productive initial talk with your real estate agent to discuss all your wants and needs. In-person is generally ideal, but may not always be possible. Video chats are a terrific alternative too. Plan on discussing your thoughts and be willing to offer up some basic details regarding your financing plans, including your expected down payment percentage and specifics from your current mortgage, if applicable.
Discuss your budget—how much do you want to spend? As well, you’ll want to explain to your agent what you’re looking for in a house. Some of the obvious specs are square footage and number of bedrooms and bathrooms. Think about your must-haves, nice-to-haves, and deal-breakers, too. Do you need a big backyard? Are you open to a fixer-upper?
After the initial conversation, be sure to work on securing a mortgage pre-approval. With pre-approval in hand, you’ll be all set to go see houses and make offers.
3. The “Two P” Approach
Stay Positive and Patient. Katie maintains that even in a tough market, there is always a house out there somewhere. Understand your constraints, and put your best foot forward. If your offer isn’t accepted, you can move ahead knowing you’ve done your best.
These two aspects are easy to overlook. Striking out on a house you wanted can be demoralizing. However, remaining positive and patient means that you’re able to keep a level head and remain focused on what you want, maintain the necessary stamina to press on, and maybe even have fun with the continued house hunt.
A Third “P” and More Home Buying Tips
Here’s another P: Preparedness! An experienced Great Midwest Bank loan officer understands the importance of preparation in a tight market and will help you be prepared too. There are a number of financing and strategic considerations to navigate, and it’s helpful to know them upfront so you’re prepared when it’s time to make an offer. Let’s explore some other key things to keep in mind.
Home Sale Contingency
At Great Midwest Bank, our loan officers understand the importance of allowing you to buy a home without first selling your existing place. A home sale contingency in your offer specifies that in order to close, you’ll first need to sell your current house by a certain date. Including this contingency in an offer might mean you’re at the back of the line when competing against other buyers—especially those willing to pay cash. It’s often a less desirable offer to the seller because closing may take longer, and there is a higher risk that the offer could fall through.
To avoid this obstacle, a Great Midwest Bank bridge loan may be the answer—we simply tap the equity in your current home for a down payment. This bridge is usually in the form of a Home Equity Line of Credit (HELOC) where only-interest payments are required. By utilizing this tool, borrowers can often avoid having to sell their current home to cover funds for their new home. It also allows them to move into the new house at their desired pace. If you go this route, be sure to set some reserves aside—as you may face the prospect of two mortgage payments at once if your house doesn’t sell quickly.
Appraisal Contingency
An appraisal contingency can be another challenge. With homes selling in some cases for well over the asking price, it’s not uncommon that the appraised value will be at or above the sale price.
We do all we can to prepare borrowers in advance for this occurrence. In most cases, even if the sale price can’t be negotiated down, other options exist to still buy the home, either in the form of additional down payment funds or considering private mortgage insurance options.
[Appraised Value vs Assessed Value: What’s the Difference?]
Home Inspection Contingency
It is considered standard practice for homebuyers to write a home inspection contingency into their offer. This means that once the offer is accepted the buyers will have a licensed professional do a full inspection of the home. It includes looking for and documenting anything from minor imperfections to major code violations.
Inspections serve a few purposes. They allow the buyer to fully know what they’re getting into with this home purchase, to start. Inspections also allow buyers to request certain repairs or negotiate the home sale price down to account for the repair costs. An inspection contingency also gives the buyer the ability to walk away from the purchase if major issues arise in the inspection.
Inspections are in the best interest of the buyer. But in this ultra-competitive market, we’re sometimes seeing buyers opt to waive inspections to make their offer more attractive.
Compromises are tempting but think carefully. Having the winning offer on a gorgeous Victorian house might not feel as victorious if you later discover major issues with your foundation, for example. Remember to stay positive and patient—if you lose out on one house, there’s another out there that you might love even more.
Advantages of a Local Lender
In addition to working with local agents, there are advantages to teaming up with a local lender, too.
Real estate professionals appreciate the expertise that a local mortgage lender like Great Midwest Bank brings to the table. Our thorough pre-approvals leave nothing to chance, so your financing will be clear in the offer. Like local real estate agents, Great Midwest Bank loan officers know the area and will offer a personalized approach.
Experience Counts
At Great Midwest Bank, our experienced loan officers know what it takes to get you in the best position to buy. We pride ourselves on accessibility. In a tight real estate market, we know you have questions that need to get answered quickly.
Buying in this market requires a team effort, and Great Midwest Bank is here to make the process as stress-free as possible.
This post was originally published in February 2019. It has been updated as of April 2022.