How To Buy A Home In An Extreme Seller’s Market (That’s Occurring During A Pandemic)

Forbes

by Natalie Campisi
March 23, 2021

files/open_housexxx.jpeg

Spring is usually the start of the home-buying season, but 2021 might defy the old model, one that counted on seasonality—and the traditional ways we shop for houses.

The pandemic has ushered in new rules for home shopping and buying. Instead of showing up unannounced to a packed open house—with finger-food platters that everyone picks from—potential buyers are scheduling in-person visits or even conducting walkthroughs via Facetime and Zoom. Oh, and the munchies are gone now.

On top of the pandemic changes, much of the country finds itself in an ultra-competitive seller’s market. All of this can make buying a house feel challenging, if not impossible.

Forbes Advisor asked more than 20 real estate experts, including brokers and lenders, for their best advice for buyers in the current market. Experts weighed in on what you might encounter this spring, buying strategies and how to find the best real estate agent.

Don’t Be Shocked to Pay More Than the Asking Price

Home-buying activity is hot—and it will likely just get hotter as the spring buying season approaches. Instead of the pre-pandemic spring buying surge eager buyers already have been lining up to buy a house for months, including during the usually slow winter season. This has occurred even as extremely low inventory has made it harder to lock in a deal, never mind get a discount on a home.

“We will definitely see more buying and selling, but it won’t be the typical spring spike because the market is already busy, and the pandemic is continuing to influence how people buy and sell homes,” says Daniel Beer, CEO of Beer Home Team of eXp Realty in San Diego. “Although interest rates are starting to inch up, inventory is still low. I think we will continue to see multiple offers and homes selling well over the asking price.”

Even as home prices and mortgage rates steadily rise (the average rate on a 30-year fixed-rate mortgage is still more than half a percentage point lower than last year), buyers are not sitting out.

Existing-home sales shot up year-over-year in January by 23.7%, while the median home listing price climbed by 14.1%. Meanwhile, the number of for-sale homes on the market broke record lows in January (1.04 million units), plummeting by 25.7% year-over-year.

“The pandemic really changed how people look at and prioritize their homes, and that mindset is not going to change anytime soon,” says Kris Lindahl, CEO and founder of Kris Lindahl Real Estate in Minneapolis.

The majority of buyers (51%) have previously owned a home, according to the National Association of Realtors 2021 Home Buyers and Sellers Generational Trends Report, while 37% rented before buying. Most people said their decision to buy was out of a desire to own a home (27%), followed by wanting a larger home (10%). Some (9%) said they wanted to be closer to family and friends.

Geography May Help Dictate Home-buying Routines

Many real estate insiders Forbes Advisor spoke with say what was once “normal” may never be again, while others say it’s a matter of geography. For states that experienced longer lockdowns and mandatory school closings, the pandemic’s effects are sharper than places with looser coronavirus rules. This extends to how people buy and sell homes, as well.

 

Florida Is Wide Open

Florida, where schools are open and restaurants and bars no longer have occupancy restrictions, has seen a big boom in open houses. Local real estate agents say they expect this spring will look largely like the past with in-person home tours.

“In Miami, things are pretty much back to normal already, so I feel the trend is going to continue into the spring season,” says Tony Rodriguez-Tellaheche, managing broker and co-founder of Prestige Realty Group. “We haven’t seen a hint of a slowdown. People are wearing masks, for the most part. Some iInternational buyers are still restricted from leaving the country, but most have been able to travel.”

Similarly, Erin Sykes, chief economist and real estate agent with Nest Seekers International, based in Palm Beach, Florida, says that homebuying protocol depends on your location. So, it’s not surprising the Sunshine State real estate market is operating more like it did pre-pandemic than in other areas of the country.

“In Florida, we’ve seen unmatched activity and have been holding open houses…for months,” Sykes says. “The main difference from pre-pandemic [life] is that the opens are of a longer duration and we do not serve food or drink. I believe that most states will be in a similar state by spring, and the acceleration toward ‘normalcy’ will return through summer.”

New York Is More Restrictive

Travel 1,000 miles north of Florida to Manhattan, and the vibe is decidedly different. New York real estate agents report that buyers need to make appointments to tour a home, and some agents won’t even show a home without a mortgage preapproval.

After facing the brunt of the pandemic, and still outstripping the rest of the U.S. in new cases per day—according to the New York Times’ database of coronavirus cases—, real estate agents in New York City are exercising caution.

“In my opinion, open houses with people just showing up are not returning for at least a year and likely more than a year,” says Christopher Totaro, real estate agent at Warburg Realty in Manhattan. “The by-appointment-with-pre-signed-Covid-forms’ [routine] has, to a degree, vetted a buyer’s level of commitment. It has also created a situation where many agents, myself included, will not do a showing unless the buyer has been pre-approved for a mortgage.

“Think about it, people are essentially risking serious illness and possibly their life; it’s reasonable to know that the buyer is seriously looking for an apartment or house.”

New York isn’t alone. In California and some other states, there have been no open houses for a year, instead, showings must be scheduled to protect all involved parties from the virus.

How to Prepare for a Virtual Home Tour

If you’ve bought a house before, you might be surprised by some pandemic-related changes you may encounter. For example, many real estate agents (often at the seller’s’ request) are conducting virtual walkthroughs as the first point of contact with the home.

Virtual tools run the gamut from basic to sophisticated. A Zoom walkthrough is fairly common, whereas 3D technology like Matterport is an immersive experience usually reserved for luxury properties.

“From an agent perspective, it’s been an exhausting year, but a rewarding one as we’ve learned new ways to work through the new normal,” says Tamar Asken, a real estate agent at Avenue 8 in Beverly Hills. “We’ve created guided video tours of homes on our cellphones, and we’ll likely continue to implement some of these methods.”

For buyers, virtual tours can be a great way to see many homes while saving time and minimizing exposure to Covid-19. This is especially true for buyers moving out of their city or state and want to house hunt before they pack up.

Here are four things you should know before your virtual home tour:

  1. Know what app you have to use beforehand so you have time to install it and try it out. For example, if you have an Android phone, you won’t be able to use Facetime, so you’ll have to find an alternate video app, such as What’s App, which is brand agnostic.
  2. Charge your phone or tablet.
  3. Have a good internet connection.
  4. Make sure you’re in a space where you can hear the agent and they can hear you (for example, a loud restaurant or outdoor area with wind might not be ideal).

This is your chance to decide if you want to move forward with this home, so don’t be afraid to ask the agent to open closet doors, zoom in on something, describe specific features in detail or any other request that you might not normally make if you were there in person. The agent, in many ways, is acting as your proxy.

7 Buying Strategies to Use in a Competitive Market

The first thing buyers should know is that they’re entering a seller’s market. This means you’re not likely to cut a deal or get discounts—sometimes even if the home needs major repairs. That’s because supply is severely lagging demand.

It’s crucial to sharpen your home-buying tools if you want to compete successfully. Here are the top buying strategies experts recommend.

1. Get a Mortgage Preapproval

While there are various methods sellers can use to snag a home in today’s rabid market, the one resounding rule all experts agreed on is to get a mortgage preapproval before you begin house hunting.

A preapproval shows sellers a lender has verified your finances and creditworthiness and you’re ready to move. In just the last couple of months, for example, preapprovals at Bank of America have spiked, with about two-thirds of the applicants being first-time buyers, says Ann Thompson, a consumer lending executive at Bank of America.

2. Look for Homes Under Your Budget So You Can Bid Up

Tales of multiple—sometimes dozens— of bidders —on one home are not hyperbole. This is real life in housing markets across the U.S. For buyers, that means you probably shouldn’t look for homes at the top of your budget, as you can count on someone else outbidding you. Just be sure this is true for your area.

If you’re serious about buying a home now, a good strategy is to search for homes below your spending limit. This way you have room to bid up without dipping into savings or going outside of your target price point.

3. If You’re Borrowing Money, Give Yourself Extra Time

It’s not uncommon for first-time homebuyers to borrow money to make a down payment. However, this should be factored into your timeline. Talk to your lender about any funds you expect to receive so they can walk you through the process. For example, if someone is giving you money for the down payment, they will have to write a gift letter explaining that you don’t have to repay the money.

Also, many mortgage brokers will want to see bank statements from the account those funds are coming from, says Yawar Charlie, director of the estates division at the Aaron Kirman Group in Los Angeles

“They will want to make sure the funds are ‘seasoned,’” Charlie says. “And what that means is that the funds have been in the bank account for at least two to three months; this is so they can identify the source of that income and make sure it is, in fact, valid.”

4. Get the Best Real Estate Agent Possible

An excellent real estate agent is every buyer’s secret weapon. They’re not only great negotiators and have a solid understanding of the neighborhood you’re interested in, but they also have terrific connections, which will benefit you.

Before you hire an agent, make sure you check out their reviews, talk to people they’ve worked with and find out their experience. Once you narrow your list of top contenders, experts say you should ask important questions before sealing the deal.

Before hiring a real estate agent the majority of the panel of experts surveyed by Forbes Advisor said you should ask about the agent’s experience, including how many properties they sold in the last year. You should also read the agent’s reviews on Google and Yelp and get referrals from people who have worked with them.

Then, be sure to ask these questions:

  • How familiar are you with the neighborhood I’m interested in?
  • What access do you have to properties that are not yet listed?
  • What is the most challenging deal you made happen?
  • How can you make my offer stronger/stand out in a competitive market?
  • What are your fees?

5. Don’t Fall in Love With Just One House—But Don’t Give Up Either

Most experts advise against getting fixated on one house, as that can lead to major disappointment, or worse, bad financial decisions made out of desperation. However, that doesn’t necessarily mean you should run the other way at the first sign someone outbid you or came in with a tempting all-cash offer.

As all real estate agents with some experience can attest, deals fall through every day. “Be prepared to be a second choice,” Beer says. “It might work out well for you.”

6. It’s Not Always Just About Price

Look beyond the cost of the home when you’re trying to win a house. You and your agent should find out what (beyond the listing price) is important to the seller that might give you an advantage.

“You may win on other contingencies or conveniences for the seller,” says Ryan Dibble, chief operating officer at Flyhomes, a Seattle-based real estate startup. “One example would be closing earlier and offering the seller a short rent back to allow them an easier move into their next home.”

7. Expand Your Search

The most sought-after neighborhoods come with the highest price tags. If you have your heart set on owning a home and living in a specific but out-of-budget neighborhood, you might have to choose between them. For those who opt for homeownership over a coveted ZIP code, that means looking in other areas.

Start by identifying what you like about your dream neighborhood. Are there local restaurants and businesses nearby? Are there green spaces? Is it near public transportation? Whatever features you value, try to find them in areas you might not have explored before.

Why should you go the extra mile? Often people overlook “beautiful neighborhoods with great schools just because they aren’t buzzy,” Dibble says.

Source: https://www.forbes.com/advisor/mortgages/buy-a-home-in-a-sellers-market/



Erin Sykes Erin Sykes
Licensed Real Estate Salesperson (FL & NY), Nest Seekers Chief Economist, LEED AP