Understanding the Buying Process Gives You an Edge
Estimated reading time: 5 minutes
A well-informed buyer is more successful in today’s complex and ever-changing real estate landscape. Understanding market conditions, knowing your purchase power, and working with a trusted & knowledgeable agent are all crucial elements because they can be the difference between a sound investment and a costly mistake. Read on to learn more about how each of these factors plays a role in your next real estate purchase.
UNDERSTANDING THE MARKET
Larger economic conditions such as interest rates, housing starts, and cost of building materials, along with smaller factors such as neighborhood demand, home inventory, and days on market, can all factor into what’s going on in a specific market. It’s always better to use the services of a well-informed real estate agent to help you navigate through all these, but knowing a little bit about each one can provide some insights into the real estate market that you’re interested in.
Here are some of the more prominent factors to pay attention to in real estate:
INTEREST RATES
Interest rates determine the monthly mortgage payment amount and as they rise, they increase the payment percentage of the buyer’s monthly income. The higher monthly mortgage payment can lower the amount a lender is willing to loan, resulting in lower home price affordability. However, in the case of a renter, the mortgage payment may be lower than today’s increased rent payments, making a home purchase a better investment.
HOUSING DEMAND
Rising incomes enable people to afford bigger mortgages and encourage demand for housing. However, demand can and does vary from market to market around the country. Demand may increase or decrease for a specific market as people move to new areas because they wish to leave a less desirable location for one more desirable.
HOME INVENTORY & MARKET TYPE
Real estate is sometimes viewed as a commodity like gold or stocks. When buying gold, stocks, or real estate, the buyer’s perception of value determines the timing and price paid. It’s the law of supply and demand. When fewer properties are available, inventory shortage creates buyer competition, causing prices to increase. This gives sellers the advantage and is called a “Sellers Market.”
A “Buyer’s Market” has more homes for sale than buyers, giving buyers negotiating power. Knowing which market you are in will help shape your strategy.
DAYS ON MARKET
When a property first hits the market, potential buyers check it out and if showings are already taking place, they may be motivated to offer a higher price to beat the other buyers to the closing table. In some cases, just a few days on the market may increase offer prices.
Conversely, when buyers notice a property languishing on the market for many days or weeks, they assume the seller is more willing to negotiate and will make a low offer. It’s common sense. If you see two identical properties – one on the market for five days and another for 95 days- you probably will make a lower offer for the one that’s been on the market for 95 days.
From the buyers’ perspective, the offer price decreases as the Days on Market (DOM) increases for that property. To learn more about how Days on Market affects the sale price of a home, read this article.
NEW CONSTRUCTION
A new construction home has some benefits over existing ones. Customization and personalizing are advantages, with no need for updating. It’s clean and probably more energy efficient and should require less maintenance. However, building a house can cost up to 20 percent more than purchasing an existing home. It has less mature landscaping, and the average landscaping project for a home under construction can range from $3,000 to $16,000, paid out of pocket by the buyer in most cases. Because of the unpredictable home-building timeline with possible building material shortages, you may have anywhere from 3 to 12 months before moving in.
WHAT ARE YOUR NEXT STEPS?
Now that you better understand how each of those factors affects a market, you can take some proactive measures to be more prepared when the timing is right.
RESEARCH IS KEY
Before entering the market, educate yourself. Follow real estate trends, interest rates, and property values in your desired market. Various real estate websites and a trusted REALTOR® can provide valuable insights.
KNOW YOUR PURCHASE POWER
Determine what you can afford. Factor in down payment, monthly mortgage, property taxes, insurance, and maintenance costs. Read this article to learn about what you can afford, and then work with a mortgage lender to obtain a pre-approval for a mortgage. In doing so, you’ll know your affordable price range,q and you’ll be able to show sellers that you are a serious buyer with the lender’s pre-approval letter.
UNDERSTAND THE COSTS INVOLVED
There are closing costs and potential repair costs besides the property’s price. Be sure you understand and are prepared for these additional expenses. If necessary and appropriate, you can factor potential repair costs into your offer for the property.
DETERMINE ACCEPTABLE AND AFFORDABLE LOCATIONS
The location of a property affects its value tremendously. Consider proximity to work, public transport, schools, and local amenities. Research the neighborhood’s safety and future development plans.
WORK WITH A TRUSTED REALTOR®
A trusted REALTOR® is vital to successful outcomes. An accomplished REALTOR® knows the market, understands property values for the area you are looking in, and can negotiate on your behalf. This article examines how to tell if you are working with a great agent.
Navigating the real estate market can appear daunting. Still, you can make informed decisions with diligent research, a clear understanding of your budget and finances, and a trusted REALTOR® by your side. The real estate market can be unpredictable. Sometimes, you have to wait for the right opportunity. Don’t rush into a decision under pressure, and please let me know when you are ready for the next step!