1. Old rule: Find your dream home, then finalize your mortgage paperwork
New rule: Lock in a mortgage before you start your search
In the past, getting pre-approved for a loan was something you could think about after you’d found a house you wanted to buy. Today, though, this approach can stall your momentum straight out of the gate. In today’s fast-paced market, it’s essential to have your ducks in a row and finish your mortgage pre-approval before you make an offer.
“You should be pre-approved by a lender and knowledgeable about your finances before you even begin your home search,” says Beverly Burris, an agent with William Means Real Estate in Charleston, SC. “With houses going under contract as quickly as they are right now, often within days or sometimes hours of going to market, there is no sense in going to see a property before speaking to a lender and learning what you can afford.”
Putting off the pre-approval process could lead to your dream home passing you by, she warns.
“If you wait until after you see a home you like, you won’t have time to speak with a lender or submit your mortgage application before the offer deadline,” she adds.
Many homes today will have offer deadlines that will be impossible to meet if you’re muddling through mortgage paperwork.
Furthermore, having a mortgage pre-approval letter in hand when you make your offer will show sellers you’re serious and can follow through with your purchase. This, in turn, will give you the edge over any competing buyers who haven’t completed this crucial step.
2. Old rule: Shop for homes you can afford
New rule: Shop for homes priced below what you can afford
Traditionally, once you had a pre-approval in hand, that’s the amount that you’d use to set your budget when shopping for homes. After all, a pre-approval tells you (and the seller) how much the mortgage company is willing to give you as a loan.
In today’s market, you may want to structure your budget a little differently.
Lori Ozley, a manager with Birmingham HomeBuyers in Birmingham, AL, advises buyers to look at homes with list prices that fall below the top of their price range.
“These days, houses are selling for more than their list price and, as a buyer, you’re more than likely going to end up in a bidding war,” she explains. “If you look at properties that are under your budget, you’ll have room to submit a competitive offer that goes above the asking price.”
Let’s say your budget is $375,000 and you are touring homes that cost that much. Chances are, the homes that list for $375,000 will sell for a chunk more than that. Your mortgage pre-approval won’t cover the overage, and you will be an unqualified bidder. To avoid falling into this trap, shop below your means so you have room to go up.
3. Old rule: Tour a property, then take a day or two to decide whether to make an offer
New rule: If you love a property, act fast
Buying a home is a big decision. It’s no surprise that many buyers want to take the time to weigh the pros and cons of buying a particular property before they decide to submit an offer. Maybe they want to visit on a weekday and the weekend, to see what the traffic is like, or during the day and after dark. Or they want to bring along cousin Fred, who’s a contractor, to kick the tires, so to speak.
Yet today, many buyers who take this ponderous approach may find that the home they love is long gone by the time they pull the trigger—snapped up by a buyer who pounced within hours of seeing the place.
Bill Samuel, the agent and investor behind Blue Ladder Development in Chicago, puts it plainly: “If you are interested in a property, you must act quickly or you risk losing out to another offer. When you really like a property, you should sit down with your real estate agent, go through the comp research, and work on putting together an offer the very same day.”
This is not to say you should feel pressured to gush money at the first home that looks OK. Ideally, you should tour enough homes to understand what you want, and what your money can buy. That way, you can strike with confidence rather than feeling rushed and unsure.
4. Old rule: Offer below asking price and wait for the seller to counter your bid
New rule: Put your big number out there from the start
The tactic of going back and forth with a seller until you’ve reached an agreement is a rarity in this hot market. With inventory at a record low, multiple buyers are competing for the same few available properties. As a result, buyers need to put together strong offers to stand out from the crowd.
“Be prepared to make your best and final offer from the beginning,” advises Jodi Dougherty, a luxury broker at Downtown Realty Company in Chicago. “Since sellers often receive multiple full-price offers, you may not get an opportunity to counteroffer if you come in too low.”
That said, price is not the only factor that matters when submitting an offer. It’s often also a good idea to have your real estate agent find out about other negotiation points that are most important to the seller. From there, you can tailor your offer to match the seller’s needs. This involves things like whether you’d be willing to lease back to the seller for a month or two as the seller figures out where to move next.
“If you’re willing to be flexible, any degree of convenience you can offer the seller will strengthen your position,” says Dougherty.
5. Old rule: Expect to buy a home after submitting one or two offers
New rule: It will probably take multiple tries before you succeed
Still, even when you do put your best foot forward, it’s not always enough to persuade the seller to accept your bid. With that in mind, buyers should be prepared to go through the offer-writing process more than once before they are able to land a home.
‘You can almost plan on having several offers not go through before one is accepted,” explains Brian Chinn, leader of the Brian Chinn Team at Newberry Real Estate in Tyler, TX. “While that isn’t always the case, it happens more often than not in this market.”
Chinn also acknowledges that submitting an offer in this market can be an emotional experience, especially after a few rejections.
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