The Home Buying ‘Rules’ You’ve Heard Lately That Should Be Broken

It’s been a crazy, crazy world for the past few years, and that includes a lot of the real estate market. But times are changing, once again. And the good news for potential buyers is that the “anything goes” rules of the COVID-19 pandemic housing market frenzy are lifting.

While we have yet to reach homeostasis – where buyers and sellers have equal power – there are signs of a more balanced real estate exchange.

In fact, even with rising interest rates and inflation, a recent investigation by fintech mortgage lender Lower found that nearly 6 in 10 (56%) potential buyers felt the time was right to buy a home.

How is it possible? While higher interest rates mean some potential buyers won’t be able to qualify for a mortgage, this drop in demand benefits buyers who are still around, giving them more options and a bit more power to negotiation.

Granted, exact buyer power will vary by location – some stubbornly boiling markets will remain tough. But the prevailing winds are blowing a bit more in favor of buyers these days. So many of the crazy rules you’ve been hearing (and probably following) over the last two years of the real estate pandemonium no longer apply.

To help you prepare for this new world, here are some of the pandemic-era real estate rules that are now possible to break.

During the pandemic, if you hesitated on a house, someone else would pick it up very well on the spot. Today, however, there may be a little more time to think before making an offer.

“For the past two years, you had to make an offer within hours of seeing a house,” says Elisabeth Sugar Boesea real estate agent with Coldwell Banker Realty in Boulder, CO. “And although inventory is still low, there are many more homes available on the market than throughout the pandemic since 2020. This has given buyers the opportunity to shop around. ”

Chief Economist of Realtor.com® Danielle Hale agrees, saying homes are taking longer to sell this year than they did last. (Ads are currently 50 days long, up 7 days from a year earlier.)

“Generally, you probably have more time to make an offer, although that’s certainly not a guarantee,” Hale says. “If you’re on the fence about a home or its asking price isn’t quite within your budget, you might want to keep an eye on it, and if it doesn’t sell right away, you may have – be a margin of negotiation with the seller.

In fact, Boese has recently worked with clients who have fallen in love with a home.

“We wanted to make an offer right away, but we also wanted to buy it for less than the list price, so we waited a month,” says Boese.

After a month, it was still on the market, which meant its buyers could also be breaking another cardinal rule of the pandemic. (See our next point.)

2. “Prepare to pay well above the asking price

Boese’s clients were considering a home listed at $1,100,000, even though their budget was $1,000,000. While a $100,000 lowball would have been laughable a year earlier, Boese knew it could work today, so they gave it a try.

“We explained that the market had changed, that the house needed a lot of updates and that we were ready to do the renovations, but we also had our eye on several other properties,” says Boese. “The sellers accepted without any counter-offer, and priced it at list price. Instant equity of $100,000.

This story proves that buyers no longer need to pay more than the list price to get the house. In fact, data from Realtor.com shows that the share of homes with price cuts is nearly 20% today, up from 11% a year earlier.

“With the housing market changing, there’s really no need to bet on a house in order to win the auction, unless it’s in an area that’s still hot,” says Jason Gelios, real estate agent with Community Choice Realty in southeast Michigan and author of “Think Like a Realtor.” “I actually have more buyers right now who are bidding less than the asking price because there aren’t many buyers.”

3. “Once you get pre-approved for a mortgage, you’ll know what you can afford”

During the pandemic, interest rates were at historic lows. So when people got pre-approved for a mortgage, they could probably assume it would hold once they found a home they wanted to buy.

Today, however, the high volatility in mortgage rates means that what buyers can afford to buy may vary from week to week.

Therefore, Hale recommends “regularly testing” your budget by running the numbers over a wide range of possible mortgage interest rates so you can be prepared no matter what.

“Recent mortgage rates have risen and fallen enough to have a huge impact on home shopping budgets,” Hale says.

In other words, pre-approval is not a guarantee; Be sure to double check current interest rates before making an offer that is within your financial reach.

4. “Giving up the contingencies is worth the risk of getting the house”

During the peak of COVID-19, many homebuyers were giving up contingencies left and right. From forgoing home inspections to adding appraisal waivers, buyers were putting themselves in a risky position just to win an offer on a home.

“At the height of the pandemic, one of our buyers – an elderly single woman – was in fierce competition with other buyers for a small cottage over 100 years old, and we advised her to waive all inspections and contingencies in order for its offer to be competitive”, declares Colleen Gustavson Brownell, realtor at Hunt Country Sotheby’s International Realty in Leesburg, VA. “She did just that and ended up with the winning contract.”

Fortunately, in this case, the property turned out to have no major problems.

“The risks this buyer had to take to buy her dream cottage fortunately worked in her favor,” says Brownell. “But under normal circumstances, such as today’s rapidly changing market, we would rarely advise a buyer to forego home inspections, as there is too much risk involved.”

Contingencies not only protect homebuyers, but can also strengthen their borrowing power.

Tan Tunadora senior loan officer at Atlantic Coast Mortgage in Loudon County, Va., recently worked with a couple who couldn’t qualify for a mortgage without selling their current home.

“I asked them why they didn’t make their offer contingent on selling their house, and they had no idea they could even do that today,” Tunador says.

The couple submitted a new offer with the possibility of a house sale, which was enough to close the deal.

“For more than two years, we have not seen any possibility of a house sale,” says Tunador. “Now my team has six loans in progress with this contingency.”

5. “Don’t dare ask a salesperson for concessions”

During the pandemic, asking a seller for concessions likely meant losing the deal. But now that mortgage rates are over 6%, asking for a little financial help is no longer off limits.

“The pandemic rule was ‘do what the seller wants.’ But now more buyers are asking for price concessions, closing cost assistance, and interest rate buy scenarios,” says Tunador: “In the DC metro area, we’re seeing homes stay on the market longer and buyers aren’t afraid to ask for concessions or price reductions.”

6. “You’ll need a 20% down payment on a conventional loan”

High down payments have been one way potential buyers have won competitive bids during the pandemic. This left extremely qualified buyers who were more conservative with their funds in a difficult situation.

For example, during Chicago’s hot market, a real estate agent Brian Kwilosz had highly qualified buyers who could afford to put down 20%, but preferred to put down only 5%, leaving plenty of funds left over for later renovations. They ended up losing several bidding wars.

“Finally, we asked the lender to issue an additional letter of approval stating that they qualified for a conventional 20% down payment mortgage and were just as qualified as our competitors,” says Kwilosz. .

It did the trick: “They were able to buy the house with a 5% down payment,” he says.

Fortunately, today’s homebuyers don’t need to take such extreme measures to prove their worth to sellers.

“During the pandemic, sellers weren’t even considering conventional low down payment loans, let alone FHA or VA,” says Kwilosz. “Now we have much more success getting our VA and FHA buyers under contract.”

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