5 Tips for first time homebuyers in a Sellers market

For many people, buying their first home is the biggest financial commitment they will ever make. It’s important to be prepared for all the challenges and rewards that come with homeownership. If you’re thinking of buying your first home in a Seller's market, here are five tips to help you get moving in the right direction.

Real Estate Agents 

1. Find an Experienced Realtor. For a first time homebuyer buying a home can be a daunting task, especially if you’re in a highly competitive market. A good real estate agent will guide you through the process, help you find the right property, and will negotiate on your behalf. They will have extensive knowledge of the local real estate market and be able to help you find the best home suitable for your needs. A good real estate professional can also help you find new listings quickly, and sometimes even before they hit the market. This can be the difference between have a shot at a new listing, or not.  

What's the difference between buyer's market and seller's market?

2. Understand the difference between a Sellers' and Buyers market. In a Seller's market, there are more people buying homes than selling them, meaning inventory is low. This means that sellers have the advantage when it comes to negotiations. In a Buyers market, there are more homes available on the market than active buyers, so buyers have more power when it comes to negotiations. It’s important to understand the current market conditions in your area before you start your home purchase. Consult your real estate agent.

Get a Mortgage Pre Approval 

3. Get pre-approved for a mortgage. Getting a pre-approval for a mortgage is one of the most important things you can do when buying a home. This helps you confidently shop for homes that you know are within your budget. It also gives you an advantage when it comes to making an offer, as the seller will know that you’re already approved for a loan within that price range. Knowing you will be comfortable with your monthly mortgage payment is a great feeling. The current interest rates will also affect affordability. If interest rates are on the rise, it is a good idea to lock in the current rate. Your lender can usually lock in an interest rate for up to 120 days. Talk to your mortgage lender about the difference and benefits of a variable rate Vs fixed interest rate.

What is your Budget?

4. Determine your budget and what you can afford for your purchase. It’s important to have a realistic idea of how much of a mortgage payment you can afford before you start looking at buying a home. Don’t forget to factor in monthly expenses such as property taxes, property insurance, utilities, home maintenance, and other closing costs. And always keep in mind to leave plenty of room for lifestyle expenses and other costs. You never want to leave yourself "house-poor". This is why mortgage lenders will calculate your mortgage approval amount based on your Gross Debt Service (GDS) ratio. You should never exceed 30-32% for housing costs (principal and interest, property taxes, condo fees, etc) for your purchase. And a Total Dept Service (TDS) Ratio should not exceed 40-42%. 

Structure a Competitive Offer 

5. Prepare to make an offer on a home with your Realtor's help. When you find a home you want to buy, your Realtor will help you write an offer that is favorable to you, and that also appeals to  the sellers. In a seller's market, you will likely be competing in a "bidding war" with other home buyers for the property you want to purchase, especially at the entry-level price points. These tend to be the busiest at the best of times. They will also negotiate on your behalf, or show you how to structure an offer to be successful in a multiple offer scenario (bidding war). Remember, it’s important to remain flexible during the buying process, as things can change quickly in the housing market.

If competing in multiple offers, there are ways to help strengthen your offer to be more competitive. Some of these include:

• A strong deposit. This will show the sellers that you are serious about their home. The amount depends on the price point you are shopping in, and also some of the other factors in your offer, but I recommend in the neighborhood of 5 percent of the purchase price with is usually the minimum required down payment amount (it also helps to have a larger down payment if it is possible). One risk to keep in mind is that if you do not proceed with the purchase for whatever reason, the deposit is held in the listing agent's trust account, and may be held for up to 10 business days. So if you find another home immediately after not proceeding with your initial offer, you may not have access to those funds until they are returned.

• Possession Date. By giving the sellers the closing date they prefer, you are appealing to whatever their plans are for their next home. The seller may have purchased another home that requires a specific date, or some other arrangements, so giving them their specified date, makes the decision that much easier for them. The preferred possession date is typically listed on the listing. Ask your realtor!

• Purchase Price. You will likely have to be aggressive with your price to out-bid your competitors without "over-paying" for the home. You will likely have to meet or exceed the asking price. This is where is of the utmost importance to work with an experienced real estate professional who understands the fair market value of the location, property type, and market you are shopping in and can help you save money.

• Conditions. Offers will typically be conditional upon things like financing approval, homes inspection, and condominium document review (if buying a condo). It can help to reduce the conditions within your offer to help make it more appealing to a seller. If the seller does not have to worry about you getting your financing approved after the offer, or a property inspection item, then they could favor you over another offer that has these conditions. Even if the other offer is more money. However, there are obvious risks to removing these conditions from your offer to purchase, so make sure to consult your real estate agent and/or mortgage professional before even considering this tactic.

By following these tips, you’ll be well on your way to home ownership in a Seller's market. Remember to work closely with your real estate agent and stay informed of the latest market conditions. Good luck with your home purchase!

If you have any questions about buyer a home in a sellers market, or how to get started, contact Corey Sylvester at 780-221-3088.

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