In many ways, real estate specialists say it’s both the best and most challenging of times for homebuyers.
“Mortgage rates are now almost unbelievably low, making it inexpensive to finance a home. Jobs are more secure, and people feel richer because their retirement funds are growing,” says Michael Crowley, a real estate broker working with buyers since 1992.
But given tight inventories of available homes in popular markets, he notes many purchasers still find it extremely stressful competing with other would-be owners.
“To win against other contenders, the urge to overpay is still there,” says Crowley, a past president of the National Association of Exclusive Buyer Agents (naeba.org).
The quest to own property is especially intense among potential first-time owners, who represent nearly a third of all home purchasers and were a significant factor pushing up overall sales in October, according to Lawrence Yun, chief economist for the National Association of Realtors (realtor.org).
When it comes to shaping an offer for a property you like, Crowley cautions against letting your emotions get the best of you, even if you’re enamored of the property and are competing with rival bidders.
“You can’t always count on appreciation to bail you out if you have to sell and move unexpectedly in two or three years. Remember too, there are high transaction costs involved in selling one house and buying another,” he says.
Crowley recommends that buyers set a ceiling on how high they’ll go and stick to that limit.
“Base your highest potential bid on both recent sales in the same neighborhood and what you can afford. Then put that top number on an index card and carry it in your pocket when you go to your agent’s office to write up any offer or counteroffer,” he says.
Here are a few other tips for buyers:
-- Plan ahead before zeroing in on a neighborhood.
Too many buyers let emotion dominate their decision on where to live, says Michael Knight, a financial adviser affiliated with the Garrett Planning Network.
“Many people pick a neighborhood too quickly,” says Knight, who recommends you compare several areas before making your pick.
“You’ve got to do plenty of research. Have an informal talk with a few knowledgeable real estate agents in any area you’re considering,” he says.
Which neighborhoods are most likely to hold or gain value in the future? Knight says top quality public schools are critical, particularly now that private schools are out of reach financially for many families.
Access to quality public transit is also high on the list.
When talking to real estate agents, ask them to show you the neighborhood’s amenities on a map. Also, ask them to assemble data for you on sales trends in the community -- including the median time it takes to sell a home there.
-- Search for sellers who are motivated to move.
As a would-be buyer, you may feel uncomfortable about seeking out owners who must sell quickly due to the loss of a job or mortgage payments that are too high for their income. But Crowley says you needn’t feel guilty about doing so.
“You could actually be doing the sellers a favor in such a case. Even if you buy at a discount off the current market value, the owners will likely do better selling to you than they would if the bank took away the house and ruined their credit in the process,” he says.
How can you identify highly motivated sellers before the foreclosure process begins? Obviously, your agent can often find them through the Multiple Listing Service. An additional approach is to walk around the neighborhood on a weekend, striking up informal conversations with residents there.
“On a Saturday or Sunday, you will likely encounter residents who are out walking their dogs or taking their kids to the park. If you’re friendly and express your admiration for their area, they’ll likely chat openly with you and tell you neighbors they know who intend to move soon and the reasons why,” Crowley says.
-- Research property values in the area where you wish to live.
Once you’ve chosen a neighborhood where property values are solid and you’ve found your dream home there, you’ll want to carefully assess its true current value before formulating a bid.
“With rumors about a potential recession in the near future, it’s vitally important you obtain a true ‘opinion of value’ to ensure your bid is at the right level,” Crowley says.
To help develop a realistic estimate of the worth of the home you wish to buy, ask your agent to provide you with statistics on properties that have sold in recent weeks -- the fresher the data, the better. Make sure this analysis takes into account any likely “distress sales” that have occurred lately, which often come at a sacrificial price for the sellers.
“Even if we face a recession, it’s unlikely that prices will plummet in coming years. Still, it’s a very good idea to resist overpaying, even if you love the house. Should you have to walk away from one house you like, I guarantee you’ll find another one that’s an equal or better choice. All that it may take is your patience,” Crowley says.
(To contact Ellen James Martin, email her at firstname.lastname@example.org.)