Low inventory is continuing to push housing prices up, creating a purchasing environment flooded with aggressive bidding and buying tactics. According to Zillow, however, that doesn’t mean buyers should be scared away or that now is not a good time to buy. Here are some tips from Zillow for how your buyers can score their dream home despite the bustling market:
According to a Zillow survey, offers typically fall through because of issues with money, mortgage or financing.
Zillow senior economist Cheryl Young emphasizes, “In a tighter credit environment, it’s important to make sure your credit score is good. Evaluate your current credit situation and make a game plan to clean up your credit score, if needed, prior to starting the pre-approval process.”
A better credit score can mean a difference of tens of thousands of dollars over the life of a mortgage, and your buyers could discover it’s better for you to wait to buy until they can improve their score.
Buyers should also shop around for a mortgage as it can mean a difference of several hundred dollars a month. Have your buyers speak with different lenders to get the lowest possible rate, and have them ask questions about interest rate, down payment amount and estimated closing costs.
Be sure to also clarify the difference between pre-approvals and pre-qualifications. Pre-approval means your buyers are approved for full financing and requires a more comprehensive finance and credit check. Pre-qualification gives buyers an idea of how much they can afford, but does not go as in-depth into the financials. According to ZIllow, in a competitive housing market, pre-approval is the way to go.
Zillow survey data shows that 40 percent of buyers with a mortgage and 52 percent of first-time homebuyers receive loans or gifts from family and/or friends to help with the down payment. Zillow recommends that buyers have that money transferred into their account well ahead of time to avoid delays in the financing process.
Due diligence for home improvements is also important, says Zillow. As some buyers may have to compromise for a home that needs a little TLC, buyers should do research on how much home improvement projects may cost and factor those financials into their budget.
Because the housing market is highly competitive, your buyers need to prioritize exactly what they want. The property should be within their budget and also fit their needs. Have your buyers make a list of their top criteria when starting their home search and outline what trade-offs they are willing to make ahead of time.
To save on time, as homes are going under contract in about two weeks according to Zillow, have your buyers tour a home virtually to narrow down options. With 12 percent of homebuyers willing to purchase a home sight-unseen, these virtual tools can help your buyers make a decision more quickly and not miss out on the perfect home while waiting for a showing.
The Bidding War
In today’s market, it’s very likely that buyers will end up in a bidding war. Zillow senior economist Jeff Tucker stresses the importance of setting a hard ceiling on what your buyers are willing to offer so they can avoid spending more than they can afford.
An escalation clause can be extremely valuable in a competitive market, according to Zillow. The downside, however, is that your buyers might pay more than originally intended. To avoid going over budget, have your buyers shop for homes that are below their maximum price point so the escalation offer stays within their budget, giving them some wiggle room in case of bidding wars that drive up the price.
“If you have a maximum budget point, only look at homes listed about 5 to 10 percent below that price,” explains Tucker. “With more homes selling above list price this year, you might get outbid every time if you’re only putting an offer on homes already at your maximum price. Use Zillow to look at recently sold homes in the neighborhood to get an idea of how much financial flexibility to give yourself.”
For more information, please visit www.zillow.com.