Buying a Home has Changed
The real estate market—and daily life—has been completely impacted by the Coronavirus / COVID-19. You’ve put yourself in a position to financially afford home ownership. Now you’ve found a home you love and want to make an offer. Is the Coronavirus crisis an opportunity to make an aggressive offer? Is it now a buyer’s market? Will prices be lower? Fewer buyers? Let take the opportunity and strategize since you’ve found the right home, can you buy it at a lower price?
Be the Best Buyer – Get a Mortgage Commitment Letter
Securing financing may be the biggest challenge right now, so make sure you have a mortgage commitment letter when you make an offer. This is a more detailed document than a pre-approval and, as the name implies, represents a firm commitment from your lender.
I’m seeing in South Placer that many lenders are tightening up their terms and conditions. Minimum credit scores and required cash reserves have risen to new levels, making it difficult for many buyers to qualify. I’m also seeing home loans which allow buyer to borrow over $510,000 are being scaled back, and some banks are no longer offering “Jumbo” loans to buy a home.
Call and check in with your lender and get a mortgage commitment letter if possible. At a minimum you should have a pre-approval but in this low inventory market currently you need to demonstrate you are the best and strongest buyer. A mortgage commitment letter is the strongest qualification of you as a buyer using a loan to purchase a home.
I’m recommending buyers stay in touch with their lender as frequently as they need to. Here is what I would do if I was an active home buyer in this market:
- Check in with your lender prior to viewing home to make sure you have a loan to buy.
- Contact your lender at least once a week to see if the loan to buy is still available or there are better options
- Don’t hesitate to engage your lender to answer any questions or issues you have for financing a home
Just don’t be afraid to over-communicate during this time. The credit markets which fund the mortgage loan markets are shifting rapidly and often hourly from my discussions with loan officers.
Cash Offers Win – Prove You Have the Cash with Your Offer
And if you have the funds, all-cash offers are even more desirable to sellers during this time, as they allow buyers to close on the home more quickly than an offer contingent on financing.
How low can you go?
Well in reviewing the market activity for South Placer, homes are still being listed and homes that are priced competitively are going into contract quickly. The quality of the buyer: how qualified, strength of the buyer is more important to Seller’s now than getting their price. So yes, there is some wiggle but really what has happened IMO is that there are fewer buyers so the opportunity to buy a home without a bidding war is in your favor.
Mortgage Payment Programs are Impacting Inventory
The FHA and banks have rolled out mortgage forbearance programs, so most sellers are not in immediate danger of losing their home, even if they just lost their job or their income has been significantly cut. I have seen sellers pull their listings and wait for better market conditions, so inventory remains tight in South Placer at this time.
Let’s look at some buyer scenarios that are emerging in the time of the crisis.
Seller Scenario 1 – Every New Listing is Negotiable
If a home seller who doesn’t have the luxury of time is facing a smaller buyer pool, due to stay-at-home orders and concerns about buying a home based on what may only amount to a virtual tour. So, buyers might have a window of opportunity for a short time when it comes to homeowners who need to sell. However, I would find it difficult and challenging to get the information that the Seller needs to fire sale a new listing if it is priced right. I wouldn’t count on a new listing that is priced competitively being the opportunity to submit a low offer.
Buyer Scenario 2 – That Overpriced Home Listed for Months can now be Bought.
A home that has been on market for a long time and is by definition “overpriced” might be the best opportunity to make an aggressive below list price offer. This I feel is the best opportunity to get a better price if the home check all the boxes for feature you want in your next home.
Buyer Scenario 3 – If I can Steal it, I’ll Buy It
The entire real estate market is 2008, Inventory is at record highs, I’ll buy anything that is a steal. My agent and I will be writing an offer a day to get a deal. Why not? Because at this time buyers should not assume that because we are in a pandemic, they can automatically lowball a seller. Remember sellers aren’t flooding the homes with new listings right now. Sellers may be more willing, however, to entertain offers on the lower end. The real estate agent community is tight, and you might quickly learn that somehow your offers aren’t even getting a response. I don’t recommend you be the investor buyer at this point in time
Conclusion – Write an offer
The only way to test a seller’s level of motivation is to make an offer. But if you really want the home be prepared to pay a fair price. We are not sure at this time what the motivation is to sell. Trying to gain information prior to making an aggressive or fair offer is key for success in any market. At this time, I think if your offer is too low it will be “shopped” to other perspective buyers and their agents especially when the buyers buying were ready to buy before COVID-19 and the sellers are still optimistic that the low inventory works in their favor still.
Be Prepared for a Longer Closing Because of Coronavirus
In the age of coronavirus, the health and safety of everyone in the transactions is a concern. That means buyers need to prepare for potential delays. The California Association of Realtor has provided forms and guidance to help agents inform their sellers and buyers to understand the potential time needed currently to complete a real estate purchase.
In the end this is about protecting the health of everyone involved in a real estate purchase. Not only should we be concerned about the health and safety of buyers and sellers but also the people that will help you complete the purchase. For example: we need to protect from appraisers, home inspectors, and repair contractors. They are adjusting their guidelines and availability, which can slow the transaction. (Many of these professionals are quickly adapting to doing their work remotely when possible.)
Again, this additional time has been adjusted by the industry to help seller and buyers complete a purchase. You as a buyer just need to understand that the time periods might need to be extended to allow a smooth transaction. It doesn’t mean you shouldn’t have a viable and firm date for the close of escrow so you can plan the move into your new home.
The goal of buying any “dream” home is that is it for most of us the home we make an offer on is a home we really want. Sure, price is important but if it is the “one” and you are comfortable with the financial commitment you should be committed to making the purchase work and pay a fair price to own it. Sellers want to sell to a buy who want their home. Yes, at the end it’s about the sales price, but if you treat the transaction like buying a pair of shoes, you’ll find sellers generally want to sell to the Buyers who really wants their home. Be the best most qualified buyer, be committed to buy. You’ll find you will have more homes to choose from the market before COVID-19. Currently we are seeing fewer buyers, which mean these buyers that are active have more homes to choose from. If you are actively buying today it is a good time to buy. Good luck.