Home buying in a hot market: traps to avoid
Success smells sweet when you can sell your home in a hot market. The other side of the equation -- the buyer's side -- stinks.
I sold my home when the market was leveling off where I lived. Now I'm competing with investors and desperate buyers in a completely different market where there are few new construction homes and not enough resales to buy.
Many homes that do come on the market desperately need updating due to neglect while languishing in foreclosure or belt-tightening during the recession. Homeowners who managed to weather tough economic times didn't always have much left in their budgets to do renovations. Most homes in this area were built in the last century -- many in the '60s, '70s and '80s, and quite a few earlier than that.
Hunting for a charming bungalow here at a reasonable price should be a piece of cake, but investors are circling like sharks and offering sellers cash. They gut these older homes of all their interior, architectural charm and trick them out with the expected upgrades -- granite counter tops and stainless steel kitchen appliances. Then, they wait until they can find buyers who will give them a generous return on their investments.
There appear to be plenty of buyers who can afford these inflated asking prices, and they are ready and jockeying to outbid each other. Prices are going up so fast that in the couple of months it took my home to sell and close on the other side of the country, my budget can no longer compete.
Once you are out looking at homes, you may eventually walk through the door off what my agent calls "your wow home." It will be love at first sight, but you can be headed for heartbreak in a hot market. Here are a few ways to protect your feelings and your finances:
Don't fall in love with the first charming house you meet
- First find out how much you can afford. Consult a mortgage broker as soon as possible, preferably one with a good working relationship with your real estate agent because when you find a house you want, you need to move quickly to show sellers a pre-approval letter from a local broker or lender. Otherwise, you can be late to the game when your dream house comes on the market.
- Identify specific areas with acceptable homes that fit your budget. After consulting the mortgage broker with whom my agent works, I found I could afford a little more than I thought I could…but there were some caveats. For example, I'm limited to buying a single family home because most condo fees would put my monthly costs over budget. I found that in this hot market, most of my preferred locations consist primarily of homes priced over my budget. Most of us want a little more than we can realistically afford. So I adjusted my searches to target a few areas and neighborhoods within my budget, but still safe and reasonably well-maintained.
Buyer's remorse can be an expensive regret
- Don't panic and settle -- or worse -- offer more than you can afford. A home is not like a pair of shoes you buy and then find they don't fit properly after you've worn them a few times. It's too expensive a mistake to buy the wrong house -- or the perfect one that breaks the bank. It can take time to find the right home. Experiment with making offers and listen to your real estate agent's guidance. If necessary, compromise once you figure out which items on your wish list are dispensable and which are deal-breakers.
- Don't get discouraged. Keep looking. What goes up must come down. Booms and busts in the housing market are inevitable. In many markets, there are seasonal ups and downs. The economy, interest rates, new housing starts and even election results are just a few factors that affect home prices. If you don't buy an overpriced home, you may not have as much at stake to lose when prices take a tumble.
I've just given myself a smart pep talk. Now I'm going to take my own advice.