I'm about to blow your mind - the current Real Estate market favors the seller. Yes, I know. I didn't believe it at first either. Obviously, that's a bit sarcastic. Unless you've been living under a rock or you're just now beginning to look into the real estate market, the past handful of years has been more of a Seller's Market than a Buyer's Market. The number of potential buyers coming of age to own a home combined with covid stimulus and a handful of other factors has driven demand for new houses to an insane level, all while keeping housing inventory at a similar, if not decreased level. Given the competition, there has been an increase in practices that buyer's and agents are promoting in order to get into the house of your dreams, but are these practices wise? Let's breakdown some of the ways people are trying to gain an advantage as well as why they might not be the best ideas.
The obvious elephant in the room is the rising real estate prices. When you are competing against 20 other individuals, families, investment groups, etc. it is not uncommon to see the price drive up in order to sway a seller into taking a particular offer. Of course the approach when listing the property might be such that the property gets listed for less than market value to get an increased amount of competition and drive prices up as well as gain more favorable terms for the seller and there is only really so much that we can do as buyers if we really want to play ball. One of the major threats that you run into when it comes to being overly aggressive with your offer price is that you run the risk of putting your financial situation in jeopardy after you win the house. When we look at the economic state of the average American, it becomes really clear how we might put ourselves into a bit of a hole. Approximately 64% of Americans are living paycheck to paycheck as of March 8, 2022 according to CNBC. Naturally the only ways that we can try to avoid falling into that category is some combination of either making more money or spending less money. Looking to make more money is sometimes difficult in specific job markets, but what we spend is a little more within our control - especially if we're talking about the purchase of your home. Typical wisdom says that we want to keep our predictable monthly payments for our mortgage, utilities and household operations ideally under 30% of your take home pay. Compare that to the 35% of their income the average American spends on housing costs and it paints a pretty clear picture of the risk we're taking on. We want to put ourselves in a situation in which we can afford to live, to enjoy the things we enjoy, to travel, to go out with friends - it's a good idea not to spend so much that you put yourself in a position in which you become "house broke" - meaning that you don't have enough money left over after your bills to spend as you please.
The next thing that buyers typically give up is some form or another in regards to inspections. In Kansas City, you typically see one of three options right now: the option to conduct inspections and not ask for changes all while reserving the right to back out based on the results, the option to conduct inspections and not ask for changes while also giving up the right to back out based on the results, or to waive your right to conduct inspections all together. In my opinion, the inspection is the single best use for your money during the home buying process. It's important to have a better understanding of what you are getting yourself into. For that reason alone, I think you do an incredible disservice to yourself if you waive the inspection altogether. Fining that balance between what to give and take can be a tricky situation, especially if you're working with a new agent or an incredibly short sighted agent. In general, if you can keep the right to back out - do it. Protect your best interest because sometimes we don't see every flaw no matter how glaringly obvious it is in hindsight. It's absolutely imperative for you as the buyer and your agent to come together and find a way to make your offer have some weight based on what you're giving while also not putting you in a position to potentially, even if the chances are slim, of being in a house with serious issues that will cost an arm and a leg to correct.
The last extremely common thing to see these days is also tied to price - the "appraisal gap" waiver. Once you're under contract, the bank will send out an appraiser to assess the home and tell them how much the home is actually worth. Typically, if the appraiser comes back and says that the house is worth less than the contract price, there is an opportunity to renegotiate because the bank will not give you more than the appraised value. Where this gap comes in is that it is being tied to these rising prices. If the price becomes a little too extreme, you may consider doing an appraisal gap in which you offer to pay $X over the appraised value not to exceed the offer price. In this instance, you're committing to pay more than the property is worth and put yourself in a precarious situation. Now based on your circumstances, it isn't always a bad idea, but if you are planning on moving in the next five years, you better hope the price appreciates to the point that you aren't upside down and owe more than you can sell it for.
Ultimately, it's a balancing act. Every situation is unique and you need an agent that will take a look at your situation and use an approach that isn't a "one size fits all" because often times the one approach won't be useful given your needs. At The Reed Team, we pride ourselves on the fact that we always put our clients needs and interests at the forefront as we take an individualized approach based on their current situation. We'd love to have an opportunity to help you in that same way.
Reno Reed, Realtor
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