An IT specialist and his homemaker wife both turned 40 this year. The milestone birthday came with one major regret: After three years of trying, they still haven’t reached their goal of homeownership in their native Minneapolis.
“It’s just one darn impediment after another. We stockpiled down payment funds -- but not enough to beat other buyers during the bidding wars of the pandemic. Now we’re facing even more trouble with high mortgage rates,” the IT specialist says.
Should this couple succumb to the economic forces affecting them and just resign themselves to renting for the indefinite future? Or should they plow ahead in hopes of finding a fairly priced property within their spending limits? Homebuyer advocates urge the latter course.
“Of course, higher mortgage rates cut into buying power. But what buyers forget is that rates always fluctuate. This means it’s extremely likely that down the road they could refinance their mortgage to a lower rate,” says Michael Crowley, a longtime real estate broker and past president of the National Association of Exclusive Buyer Agents (naeba.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 with the place 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 who could be tempted to overpay 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 more pointers for buyers:
-- Think ahead before limiting yourself to a single neighborhood.
Too many buyers let emotion dominate their decision making on where to live, says Michael Knight, a fee-only financial planner in the Chicago area.
“Have an informal talk with a few knowledgeable real estate agents in any area you’re considering. Ask them lots of hard questions before making your choice of the best possible community,” 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 more families.
Access to walkable retail stores and quality transit are also high on the list.
“People are really looking for good public transportation. You’ll buy a more marketable home if it’s close to popular light rail or bus lines,” Knight says.
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.
-- Seek out sellers who are highly motivated to move.
It’s no secret that homeowners in many neighborhoods still have the upper hand if they’re attempting to sell a reasonably priced property in a desirable area. Very few owners are now attempting to sell in order to avert foreclosure. But it’s still possible to find some who are eager 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. Another 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.
-- Do your research on local property values.
Once you’ve chosen a neighborhood where property values are solid and have found your dream home there, you’ll want to carefully assess its true current value before formulating a bid.
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,” Crowley says.
(To contact Ellen James Martin, email her at firstname.lastname@example.org.)