The Housing Market - What's a Buyer to do?
1. First - Hire a Realtor - Let them be your guide
Meet with a Realtor that is actively involved in the market.
Things have drastically changed, and using someone that is a part-time agent will not be a good navigator in this lightening fast market.
The pandemic has changed business models and in doing so, have been offering a lot of work-from-home opportunities.
The domino effect is that our housing needs have changed and many are now using their homes to account for business, school, and family being home 24/7.
The need for home offices, quiet space for home schooling and tweaking our outdoor living spaces as well as the option to live in a new city, all circle back to the pandemic.
Charlotte is high on the list of relocation destinations - for its location, international airport, good weather, and lower taxes.
Coupled with low interest rates, this rise in home buyers has caused our dwindling housing supply to be in a crisis mode. With lumber prices up, even new home sales have been unable to keep up with demand.
2. Understand the Market
As of May 2021, the Wall Street Journal noted that the overall U.S. listing inventory was down by 4 million homes. The current Charlotte market has been averaging a one-month supply of listings, where a 5 to 6-month supply is what a normal market would be like.
Charlotte home prices tend to run about 5.5% year over year. In the past year, prices have risen by 12.5%. It does not appear to be a bubble; it appears to be a price adjustment to the Charlotte market.
Hesitating on a purchase, due to the competition or thinking the price will go down may end up pricing you out of a neighborhood that you can afford now.
Case in point, neighborhoods that sold between $400,000 and $500,000 in the fall of 2020, now have starting prices of $500,000, and with competitive bidding being the new norm, any existing inventory that sells, will continue to drive those prices up.
So, the question is, can you afford to wait?
The good side of this equation is that the lower interest rates (hovering around 3%) can be locked in for a 30 year loan - which is a win for any buyer in any market.
If you were thinking that a new home is what you want, things have also changed dramatically on that scene. We have many home builders that are limiting each of their communities to lottery bids and then submitting just 4 new home contracts per month. This is due to quality control, the rising costs of materials, namely lumber (up 24%), drywall (up 7%), steel (up 18%), copper (up 27%) and contractors tapped out with more than they can handle.
CNBC (5/2021) said the rise in lumber prices has added an additional $35,872 onto the price of an average single-family home.
Again, can you afford to wait?
3. The News
If you have tried to find the home of your dreams, and it sold before you could see it...that reflects what you are seeing, hearing and/or reading in the news.
The reality is that the housing shortage is a national issue - one that has some long legs on it. We will likely be in this type of market for at least the next 2 to 3 years. For Charlotte area real estate, it has been a seller's market for about 5 years now.
Following the law of supply and demand, the low supply of housing and the high demand from buyers will keep home prices on the rise.
Some buyers may initially think their agents just want the sale.
The more you are involved in the home buying process, the more you’ll listen to the advice of your Realtor...as aggressive and uncomfortable as that advice may be, the market and the process have both changed, yesterday's norms, no longer apply.
4. Does the Highest Price automatically win?
Price is important, but there are other things — like a flexible closing date — waiving contingencies, and first and foremost, being prepared from the start.
5. Cash or Carry
If you are buying your home with cash, you will need to show "proof of funds".
If you will be carrying a loan, you will want your mortgage lender to be local. You will want your appraiser to be local - they know the local market.
As for your lender, they should be available to answer the phone and text back to you within a few hours. Written loan approvals need to be done within 14 days to compete with cash.
6. Time is of the Essence
A year or two ago, your agent may have placed a "Time is of the Essence" clause on your offer to purchase, trying to speed the homeowner into making a quick decision.
If the home you are bidding on just came on the market, it is likely already receiving multiple bids.
Knowing it is a new listing and the market is sizzling hot, the best thing you can do is put your "highest and best" offer in from the start.
The seller's agent can send a notice out to all agents, stating that "highest and best" bids will need to be in by a certain time and date. This is usually just 2 to 3 days from the home becoming active.
That being said, the homeowner can also just accept an offer and cancel all incoming showings.
A call out for "Highest and Best" is a courtesy to the Buyer's Agents and their clients.
Some offers are too hard to say no to. You may not get a second chance to adjust your bid.
7. Jump!
As a home buyer, you will fast come to realize that the competition is more intense over some homes than others.
You have no time to dawdle when it comes to viewing a home.
You need a buyer's agent that is dedicated to you so they can get that appointment scheduled and/or run out and video the home if you are out of town.
The home may only be on the market for two days before the seller's agent calls for 'highest and best' bids to be given. Which means, you lost the opportunity.
Those that have lost 5-6-7 bids, are on the hunt and they have a new objective...it's to win the bid, before they get outpriced by the market itself.
8. How to Sweeten the Offer
In this competitive market, the days of a 1 percent fee to cover the earnest money deposit and the due diligence fee are over.
In North Carolina, the Due Diligence fee is ruling the day.
In the Charlotte market, we're seeing Due Diligence fees range anywhere from $10,000 to $30,000 (on a $500,000 home) and even as much as $100,000 on higher priced homes.
The Due Diligence fee comes back to you on the day of closing and can be applied to the home purchase. It's back to being your money. However, if you walk from the contract, the due diligence fee is then the seller's to keep.
9. The Listing Price is the Opening Bid
My, how things have changed.
Your Realtor (buyer's agent) will have all the tools, software and stats to help you gauge where to place your bid and how to structure your offer to put you in the winner's seat.
10. As-Is and Home Inspections
In North Carolina, the Offer to Purchase states that the seller is selling the home AS-IS.
This does not mean you should waive your right of a home inspection.
It does mean that the homeowner doesn't have to fix anything. But, as the home buyer, you can still ask that they fix (or offset the cost of repair financially) by using the Due Diligence Repair Request.
The suggestion would be to request repairs that are a safety issue, such as structural, electrical, plumbing, radon, or mold.
Again, they can say no... but, they can also agree to do the repairs.
11. What's a good deal look like?
A “good deal” is getting the house.
As a home buyer, you are not in charge. You are at the mercy of the market and the mercy of your finances. Over 67% of homes are going into a bidding war.
Shopping for a lower priced home allows you to stay in your budget.
It will also afford you the ability to get in the bidding war and win the bid.
12. Top Tips
Hire a great buyer's agent (preferably a Realtor, as they are obligated to a Code of Ethics).
Be financially prepared.
It is a very tense market for all involved.
Be quick and then be patient.
The seller has a stacked deck - navigate the market accordingly.
