Even in the best of circumstances, buying a new house can be a stressful experience. For most people, the purchase of a new home requires research, a savings plan, and patience. At the end of the road, the reward for all of your hard work is a nest egg that will help you to build wealth for retirement.
Unfortunately, not all housing markets are created equal. There will always be cyclical events within the economy which might make it more difficult to buy a home in your chosen region or targeted price range. These are essential factors that you cannot control — but it is possible to outline strategies to mitigate the negative impact of an unfavorable real estate market.
At the end of 2017, home prices in the U.S. rose by 6.3% relative to the same period in 2016 (as measured by the S&P Case-Schiller Home Price Index). This can create additional challenges for families looking for a certain size house that falls with a specific price budget.
Usually, when this happens, it is the result of increased housing demand and a limited supply of available properties. This is often referred to as a “tight” housing market. If you are selling your house these are ideal circumstances, as they suggest multiple buyers will be available for any given property. But if you are buying a home, it can make an already-difficult process even harder.
Home Buying Strategies
One smart home buying strategy is to start with preliminary shopping. This means that you will need to assess the time range for when you plan to finalize your purchase — and then start looking for your new house 2-3 months before that date arrives. This will give you more time to make offers on houses, to get a sense of what is happening in the local markets, and to learn how to value a property based on your own individual needs. Are homes in your area frequently sell above the owner’s asking price? By how much? Which types of homes tend to fall into these trends?
These are the types of questions that will need to be asked in order to successfully navigate a local real estate market. Working with a buyer’s agent can be especially helpful because they will be able to compare current market conditions to what has been seen in the same areas over the long-term. This makes it much easier to know if you are actually getting a good deal on the property (or simply falling victim to a difficult period in local real estate).
An experienced buyer’s agent might also have some inside tips for handling closing costs or finding homes before they are actually listed for sale.
Initial Loan Approvals
Another strategy that can help prospective home buyers is to get pre-approved for mortgage financing. There are several reasons why this will improve your standing in home price negotiations.
Loan pre-approval adds credibility to your offer, and ensures that you are looking at homes priced at values you can actually afford. Your lender will give you an approval letter that you can show to agents and owners as proof that you have done all of your homework and that you are truly in a position to purchase the property.
Once you have found a house that interests you, consider increasing the size of your deposit and down payment. This can help set you apart from other potential buyers and it shows that you are serious about closing the deal. In most cases, standard home contracts require deposits of 1% of the house’s total value. If you are in a position to offer 3-5% instead, it might give you a leg up in negotiations if you find yourself in a right real estate market.
Always remember to be polite and courteous when dealing with the homeowner or their agents. In many cases, the way to the best deal lies in your ability to communicate and this can usually be accomplished without much extra effort.