June 1, 2021
Dos and Don’ts for Buying a Home at Warp Speed
Yes, it’s true that throughout the country, and certainly here in New Jersey, the real estate market is moving at warp speed. So, as a buyer, how do you prepare for buying a home now? We’ve put together a list of Dos and Don’ts that will help you adapt to the intense pace of the market – and be successful in your quest for homeownership.
Let’s start with a few Dos:
- DO get fully pre-approved for a mortgage. Once pre-approved, you will know exactly how far you can stretch your budget and what a monthly payment will look like at any purchase price and property tax combination. Perhaps even more importantly, you simply cannot make an offer these days without a pre-approval. From a seller’s standpoint, they want to be as certain as possible that once they take their home off the market, you will be able to get that mortgage. And with the surplus of offers most sellers get to choose from, your offer won’t even be considered without a pre-approval. The last thing you want is to find the perfect home and see someone with a pre-approval swoop in while you’re scrambling to get yours. Keep in mind that, in this is crazy market, every professional engaged in a real estate transaction is swamped – from real estate agents and loan officers to attorneys and home inspectors. So don’t wait until the last minute!
- DO understand the List to Sales Price ratio. We cannot stress it enough – real estate must be studied on a hyper-local level. For example, Bergen County has 70 different municipalities and each one is a real estate micro-market. In Ridgefield Park right now, properties are selling at 103.46% of asking price. What does this mean? If a home is priced at $400,000, it will sell, on average, for $414,000 or 3.46% above asking. If you are looking in Ridgefield Park, be prepared to pay above asking price. By contrast, homes in Upper Saddle River are selling at 99.95% of asking price –or roughly right at asking.
- DO be all you can be for the seller. You are buying in the hottest market EVER and you are at a distinct disadvantage – so just OWN IT. Give the seller what they want – and we’re not just talking price here. Make sure your loan officer can give their agent a glowing report of how well-qualified you are. Limit or eliminate the inspection if you can. Be prepared to offer them the closing date they want, not what is ideal for you. Pay the whole deposit up front. In short, put yourself in their shoes and remember: it IS a seller’s market.
- DO get all your ducks in a row. Buying a home can be very emotional. You want to be fully prepared and not be scrambling to put your game plan together while you are emersed in the offer process. Know what you want. Understand the home hunting/offer/buying processes and how the market is behaving. And be comfortable with the price and terms you are offering BEFORE you find the home you want to make an offer on.
Here are some Don’ts:
- DON’T skip the buyer consultation. Sure, it’s fun to look at photos on Zillow – but this is NOT the ideal way to shop for a home! Before you plunge in headfirst and start looking at homes, have someone to consult with about what is important to you. Start by thinking through what your goals are in owning a home, what your time frame is, and where you want to live. Homes are immovable in the main: you can change lots of things in the home, but location is not one of them. Make sure you carefully consider the type of community, amenities, distance from work and family, and demographics. It will be time well spent.
- DON’T get caught up in the hype. Buyers are rushing out to open houses. They see lines of people waiting to get in. Or it is hard to get an appointment to see a home because of the high demand. People make themselves crazy because it looks like everyone else is interested in a home. This is known as the “auction effect” – buyers get anxious and jump to make an offer, then they re-think it and cancel. As a result, we’re currently seeing an extremely high number of fall-throughs in this market. (While we do not track this as a profession, our completely un-scientific guess would be 20-30%.) Remember: just because “everybody” is doing it does not mean you have to do it.
- DON’T wait. This is not a bubble. Our best economic minds predict that prices AND interest rates are going up. On average, prices went up about 7% in Bergen County last year. And a 1% increase in interest rates means a 10% increase in your payment. This combination is a serious hit on your buying power (you do not live in the price; you live in the payment.)Prices may be high, but you are not over-paying for a house – you are paying what the market will bear right now. Since this will not end any time soon, it makes no sense to wait for things to slow down.
Regardless of what the market situation is or isn’t, with the right preparation there is no reason why you can’t find the home of your dreams. And here is one thing that hasn’t changed: a homeowner’s net worth is said to be 46 times that of a renter. Which one do you want to be?
