1) Choose carefully.
There’s less than six degrees of separation between you and a local Realtor. Real estate is a low-entry industry with high turnover! Don’t let the guilt of not working with your inexperienced friend or family member impact one of your most important investment decisions. Would you hire the first financial advisor in a Google search to invest hundreds of thousands of dollars for you? If not, don’t choose the first Realtor that calls you back from your Zillow inquiry either. The agents who pay Zillow the most money rank the highest – Zillow is a business. Explore your options and work with a Realtor who understands your market, is committed to your success, and will guide you through every step of this exciting process.
2) Get pre-approved BEFORE you shop.
Knowing what you can afford and what you want to afford can be very different. Set your expectations ahead of time and shop within your budget. Choose a local lender who is easily accessible and takes the time to thoroughly explain your financing options.
3) Consider the additional expenses.
There’s more than just the monthly mortgage payment! Property taxes, insurance, utilities and routine maintenance are costly and should be considered before you make an offer.
4) Win bidding wars with an escalation clause.
Buyer demand is still strong and multiple offer situations are commonplace – particularly for the most desirable new listings. Discuss the use of an escalation clause with your Realtor so you don’t lose a bidding war.
5) Reduce your contingencies.
In a multiple offer situation, the highest price doesn’t always win. Sellers consider all factors including the closing date, inspection contingencies, and more. Your Realtor should thoroughly advise you on an offer strategy so you can put your best foot forward while remaining fully protected.
6) Separate your ‘musts’ from your ‘wants’.
In a tight-inventory market a few concessions may be necessary. Don’t settle on a property that isn’t right for you, but do consider what you could comfortably live without and what improvements could make it perfect in the future.
7) Strengthen your deposit.
There’s a big difference in a $300,000 offer with a $1000 deposit, and a $300,000 offer with a $15,000 (5% down) deposit. One shows good faith and integrity and the other shows lack of commitment and risk. Show the seller(s) that you are seriously committed to buying their property with an appropriate deposit.
8) Don’t wait for prices to come down.
Interest rates are historically low and economists suggest it will take time for the lack of inventory to catch up with consumer demand. Consider this: if you are buying a $300,000 property and interest rates increase by .25% – your mortgage affordability decreases by $9,000. Using that same $300,000 house – if interest rates increase by 1%, your mortgage affordability decreases by $36,000. Low interest rates give you greater buying power!
9) Account for appraisal pitfalls.
If your strategy to win the bidding war is to offer more than listing price but subject to it appraising – put your money where your mouth is and present a contingency plan to address an appraisal gap in your offer.
10) Know this quick math.
On average, a $5000 increase in purchase price = roughly a $25 increase in your mortgage. $10,000 = $50 and so on. This quick math is also useful when considering whether to roll closing costs into the purchase price and during rounds of negotiations.