So far, 2021 has been a very exciting time in the U.S. housing market. Buyers and sellers alike are taking advantage of this rare opportunity. While sellers are able to get top dollar for their homes and seeing incredible returns, buyers have access to historically low-interest rates which offset the higher asking prices and give them a strong incentive to buy now. However, buyers in this kind of frenzied market should be on the lookout for trap doors and roadblocks that could spoil all the fun. In this article we will cover some of the obvious—and sometimes hidden—problems facing buyers in a market like this one.
As most buyers are aware, the current low inventory of housing has made the multiple-offer bidding war a regular occurrence. But there are things buyers can do to prepare themselves for battle. The first is to have all your financing pre-approvals completed before you make an offer. This means getting past the basic prequalification stage and submitting everything required by your lender to get conditional approval of your loan. Secondly, be prepared to be extremely aggressive with your offer. Just know going in that short inspection periods, appraisal contingencies, and close dates are a must in this climate.
Make sure you hire the right inspector for the job. In hot markets like this buyers have to make offers quickly on properties. If this happens, be sure to spend extra time inspecting the home during your due diligence period. Sellers are aware that buyers are snatching up listings as well. Some sellers may take advantage of this situation to hide or at least not fully disclose potential issues. If a latent defect is discovered during inspection, be sure to have a qualified contractor also take a look during the due diligence period.
This is a tricky one because, typically, the obvious result of a low appraisal would be a reduction in the purchase price. But it isn’t quite that simple in a market like this one. Many sellers in today’s market are requiring low to no appraisal contingency for accepted offers. This means the buyer will have to bring cash to the closing table to cover anything over the appraised value if the appraisal comes in low. One thing some buyers are doing is building in a sort of ceiling for how much they are willing to pay over the appraised value. In the seller’s eyes, this is still an attractive offer. But, it also gives the buyer peace of mind that they won’t be completely broke after closing.
Having the right team
The last and most important part of this whole process is having the right team with you all along the way. Be sure you have an agent you can trust who has an extensive track record and references or reviews you can see. Be sure the lender you’re working with gives you their cell number, and you can call them on evenings and weekends in case something goes wrong with your transaction. These people, plus inspectors and contractors are going to be key to getting you successfully to the closing table and in your new home in 2021.