The Crazy Real Estate Market
A friend of mine has been shopping for a home recently. She is relocating to Colorado from out of state. She has been to a few showings lately, and with the way that the market is, you are always bound to be looking at a house the same time as someone else. Sadly, she has heard a similar phrase from a lot of the people that she has encountered. There is some variation of, “Well it’s a bit of a stretch but we can figure it out.” One couple thought they could just leave most of the rooms unfurnished for a while. This mindset is horrifying to me. Horrifying!
My husband and I have also considered moving recently. We tested the waters, looked at a couple of places, and even thought about an offer on one. However, I was so shocked about how crazed people are right now that I checked out. I’m not willing to play the game. I’m out!!! Where is anyone’s common or financial sense?
The area we are considering is a great area. We have lived there in the past and loved it. We originally left because it was too expensive to buy there. Of course, it’s only worse now. I went in knowing that I would have to pay a premium vs. other neighborhoods. The real problem is that people are willing to pay more for a house than it’s worth. A lot more… When we thought we might put an offer on a place, our realtor told us that we should plan on offering 5-20% above ask. I was sure I had misheard her. I could buy a car for that, a great car. (Car’s are a mess too, but more on that another time.) When we looked at comps, I saw a house that went 100k above ask, 100k! I’m not willing to do that. I’m not willing to cover the difference between what a house is worth (what I can finance), and what other people are willing to pay. (Cash that has to come out of my pocket. Cash that could go toward retirement savings, or debt or rent for a decade!)
I am blessed not to have the personality type that is emotional about these kinds of decisions. I don’t fall so in love with any house that I am willing to pay whatever it takes to have it. I highly value the opportunity cost of every dollar that I have. That basically means before I spend a dollar I think about it’s utility, and if I’m not better served using that dollar for something else. If I paid more for a house than someone asked me to pay I would dwell on all those wasted dollars and what else I could have done with them! Probably forever… It would cause me much more regret than joy to live in a house like that. I know that’s unusual. My bottom line is that this is the worst time to buy a house, and I’m not going to right now. I have also had really bad experiences as a homeowner, so I see no shame in renting and think it is a great option for most people. I also acknowledge that I can easily stay where I’m at for a long time. I’m not in a bad situation, I just wanted a different one. I know that is not true for everyone. So, for those of you that can’t be talked out of buying a house right now, a few tips:
Do not buy a house because you are in a panic that if you don’t do it now you’ll never be able to. This is the craziest seller’s market that every real estate agent I have talked with has ever seen. This period will pass. One day you will not have to make a horrifying competitive bid to get the house that you want. Regardless of what your realtor says, houses don’t just go up forever. The pace with which they have gone up over the last two years is not sustainable, it is historic. When something is historic/not the norm, it will change. Be patient. There is no need for a sense of urgency. Save your money, and make your offer even better by having more to put down.
Put an offer in on the first day that it’s available. Do not wait until the weekend! Try and get ahead of the crowd and under contract before it gets too crowded. If the first day that the house is on the market is on a weekend, skip that home. It will have many offers and someone will significantly overpay.
Be sure that if you pay above ask, that the home that you are buying will appraise at that price. If it won’t, you have to pay the difference. That is cash that could be earning you money. Money spent on a house that is upside down on its loan is not earning you money. You will need to be in the house for a long time for the situation to change. Make sure that you plan to stay in the house for at least five years. If you are someone that is not planning on being in an area long term you should rent.
Your realtor will tell you that in order to win a bid you will also need to plan on taking care of any items that come up in the inspection yourself. If you don’t someone else will. However, it is dangerous not to take advantage of the rights that are put in place to protect you when purchasing a home. Make sure you are considering those extra costs in your bottom line. If you don’t have 20% down plus these costs, move on.
Have 20% down. You won’t have any chance of winning a bid if you don’t at least have that amount. If you don’t have that amount to put down, you can’t afford to be a homeowner. There is nothing wrong with that! In most desirable areas it is cheaper to rent than to buy right now. Don’t put yourself into a tense, stressful situation that you can’t really afford.
Make sure you really love the house! Do not compromise on anything on your wish list. If you are going to overpay and/or be upside down on your house, it should be exactly what you want. It’s really easy to fall into the trap of compromising because you know that a house will sell quickly. In your search you will experience FOMO. Fight it. Wait. The house that has all of the things that you want will eventually be available, and be ready to give it your best shot when it does.