One month ago, the home-buying quest of a young married couple took on great urgency. Two things spurred the pair -- a nurse married to a scientist -- to buy a condo in Chicago’s Logan Square. One was rapidly rising mortgage rates. The other was a letter from their landlord demanding sharply higher rent if they were to renew their lease.
“Rather than stepping back from the market, this couple vowed to move forward and fast,” says Richard Harty, the realty company owner who represented the pair.
Though this couple were fearful about overpaying for the two-bedroom unit, they ultimately went $30,000 above list, winning out over two rival bidders.
Harty, who works exclusively with homebuyers and doesn’t take listings, says many first-time purchasers are reasoning that affordability challenges will only worsen in the future, given the mismatch between supply and demand for entry-level properties.
“Rather than pull out of the market, they’re accelerating their search while mortgage rates are still reasonably affordable,” says Harty, who reports a recent flurry of home-buying activity among his clients.
Granted, the double whammy of rising mortgage rates and ascending home values has already priced some wannabe owners out of the market entirely. But many others are persevering.
“Demand is still incredibly high for homes,” says Ryan Schneider, the CEO of Realogy, the national real estate services company. Though he expects total home sales for this year to fall slightly short of 2021, he anticipates they will greatly exceed pre-pandemic levels.
Among buyers who remain determined to make a home purchase this year are those who saved resources during the pandemic.
“Some young adults have used the pandemic to their financial advantage by paying down debt and cutting the cost of rent by moving in with family. They are now jumping headfirst into homeownership,” says Jessica Lautz, a demographics expert for the National Association of Realtors (nar.realtor).
Here are a few pointers for buyers:
-- Develop a working knowledge of local property values.
Tom Early, an Ohio real estate broker, says first-time buyers are acutely aware of rising prices. And in competitive markets, they’re sometimes at risk for overpaying.
“It’s understandable to be petrified about getting outbid and losing out on a dream home. But going hog wild with your offer is folly, too. It’s critical that you gain perspective and educate yourself on local valuation trends before submitting a bid,” says Early, a former president of the National Association of Exclusive Buyer Agents (naeba.org)
-- Take note of local neighborhood value variations.
“To track values correctly, you need to go neighborhood-by-neighborhood and look at closing prices in the precise area where you’re planning to buy,” Early says.
Indeed, houses can be worth substantially more in one part of a neighborhood than another--due to differences in, say, housing styles.
“There might be a premium for a Victorian on one side of the community versus a rancher just a few streets away,” Early says.
Sid Davis, author of “A Survival Guide For Buying a Home,” says a working knowledge of property values in their target market allows buyers to better craft an offer pegged to the right price point.
“The best thing to do is ask your agent to check on closing prices for comparable homes, ideally for deals done in the immediate vicinity during the last 90 days. Using a smartphone or iPad, plus data from the Multiple Listing Service, your agent can do this analysis very quickly,” Davis says.
-- Use online guidance as a starting point only.
Several websites now provide free information on property values and can prove a valuable resource. One example is Zillow, which allows you to search data at either the property or neighborhood level. Another is Redfin.
“At the minimum, such websites get you into the right ballpark. But don’t rely on them totally, because they only give you a general idea of values and nothing more,” says Early, who’s worked in the real estate field since 1984.
-- Engage a seasoned real estate pro who knows the turf.
The classic method used by real estate professionals to reach an estimation of value for a property is known as a “comparative market analysis.” This technique is grounded in data on recent sales of similar homes to the one being judged.
Your real estate agent should find at least three transactions that are roughly comparable. Then the agent should add and subtract value based on differences between the home you like and the others.
Real estate agents are the first to concede that their judgments on the value of any given property are based on more than data.
“There’s a lot of gut feeling to pricing. It’s never a perfect science,” Early says.
-- Consider local employment trends.
Property values are always subject to change. That’s why Davis says you need to look beyond closed deals to see where values are heading.
“Unlike stocks on Wall Street, it’s rare for home values to rise or fall sharply in a few days or weeks. But local economic factors can have a big impact over time,” he says.
In a town that’s heavily reliant on a single employer, a wave of layoffs at a local company could seriously hinder values in the surrounding area. On the other hand, values could be on the upswing in a neighborhood that’s expected to benefit from a school boundary change.
“Access to a top-rated high school ... is a huge asset for many homebuyers,” Early says.
(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)