The surging real estate market continues to create opportunities and challenges for buyers.
A rebounding economy and rock-bottom interest rates have buyers competing over home listings. According to the May 2021 Housing Market Trends Report published by Realtor.com, inventory is low, prices remain high, and homes are selling faster than ever before. To say the housing market is hot would be something of an understatement.
While the flurry of activity in the housing market is welcome news, experts tend to agree that the country is immersed in a “seller’s market.” That label typically means that there are more active buyers than inventory. If you are considering buying a home, it is crucial to avoid common mistakes that prove costly.
What to Look for When Buying a House
In a seller’s market, listing prices tend to uptick for a couple of reasons. One, interest rates have gone down, making the home loan relatively cheaper, so more buyers enter the market. Another is that there are far more buyers champing at the bit than listings. In 2020, much of the activity appears to be driven by interest rates.
Given that real estate agents advise sellers to list a little higher, you will need to work hard to find a good value. There are core issues to investigate before gaining mortgage pre-approval or pre-qualification. These include the following.
- School Systems: There are plenty of online resources to vet school systems. Beyond general ratings, consider items such as graduation rates and how many students attend college.
- Property Values: It may seem redundant to talk about property values in terms of, well, value. There are multiple ways to look at increased, static, or decreased worth in an area. If you are a first-time buyer who expects to sell and purchase a larger property, then a fast increase is good. But, if you are downsizing and plan on making this your last home, a static market could help tamp down property taxes.
- Secondary Investment: Some buyers look for homes that require rehabilitation. The strategy is to buy below market price and gain quick equity after fixing it up. If that sounds like you, be sure about the difference between your ability to complete DIY projects and the need to hire a contractor. The costs add up quickly.
The important takeaway is that doing the math on value is not just tallying up the down payment and the monthly mortgage. Value also includes quality of life, equity, and what you pay in taxes. Of course, nothing gets a buyer in more hot water than making critical mistakes.
Common First-Time Home Buying Mistakes to Avoid
If you are on the cusp of experiencing the American dream of homeownership, the excitement can be almost electric. And when people are moved by emotion, sometimes they make assumptions that prove costly. First-time homebuyers are more likely to skip certain safeguards when they know multiple offers have been submitted on a property they love. These rank among the biggest mistakes.
- Skipping the home inspection
- Putting in an offer without getting pre-approved for a home loan
- Providing excessive earnest money to sway the seller
- Submitting an offer higher than the market value
Failing to have the structure and mechanical systems checked appears to be an obvious mistake. It is surprising how many inexperienced people feel satisfied after looking at a property themselves. The other mistakes can often seem like reasonable strategies in a hot market to avoid having a house scooped up by another buyer.
Putting in an offer on the spot knowing you have a full 20 percent for a down payment seems to make sense. That is until other factors such as a few tardy credit card payments or excessive student loan debts negatively affect your credit rating, potentially resulting in a higher interest rate than you anticipated.
Plunking down a large earnest money deposit may seem like a good way to get a seller’s attention. But if your circumstances change and you need to pull out of the deal, the seller usually keeps your money.
Lastly, submitting an offer above market value could result in you having to make up the difference — in cash — to reduce the home loan, so you are not underwater. This is where researching the value of the home can pay off.
If you want to know what to look for when buying a house, consider working with an experienced real estate professional who can guide you through the process. Their advice about how to negotiate in a hot market could prove invaluable.