Whether you’re a first-time buyer or not, understanding how to plan and pivot in this current seller’s market can make all the difference. At SEG, we want our buyers to be prepared for any scenario so that we can help put you in your dream home. Knowing what to expect will empower you to be the best buyer in the market. Here is everything you need to know to be prepared for this unprecedented market.

Be Clear About What You Want (and What You’re Willing to Sacrifice)

Buying a home in a tight market might mean you make a few sacrifices along the way. In this market, if you dither about a small detail that’s not “perfect,” you risk losing a house to another buyer. Knowing how to prioritize your wish list, and what (or how much) you’re willing to sacrifice for your dream home, will help you act with confidence and decisiveness—with zero regrets.

How important is that pool? Does the home really have to be move-in ready, or might it make sense to buy a less-than-perfect house on the most desirable street—then renovate it to your exacting standards? Which home improvements can wait, which can’t? We’ll help you think it through, and crunch all the necessary numbers.

We’ll show you towns and homes that meet your wishlist, so you can understand realistically what your money can buy. The more flexible you are, the more options will be available to you. This doesn’t mean you can’t find your dream home—only that the dream might take a different shape than your expectations. But our job is to make sure you’ll be equally happy.

The Market is Moving Fast; You Will Need to Move Faster

Be Ready to Make Quick Decisions. When the market favors the seller, time is of the essence. Assume a well priced, beautiful home will attract more than one offer. With record-low home shortages in our area and a large influx of buyers all vying for the same homes, you need to be fast and agile, ready to make key decisions, sometimes on a moment’s notice. Bidding wars are likely, so being “battle ready” is important. It can be unnerving for some, especially with so much money on the line, but we’re here to advise you and negotiate on your behalf. You are not in it alone!

Be One of the First Buyers to View a Listing. If you wait until the weekend to visit a home, it could be sold. Try to be one of the first showings. Sellers would like to see their home sold quickly and avoid weeks of buyer visits at all hours of the day. If you write a good, fast, and clean offer, your chances of acceptance are far better than those of a buyer who is unprepared. To get a list of homes for sale that have not yet hit the MLS, sign up for access to our office exclusives here.

Being The Best Buyer in the Market

How you can be sure yours is the winning bid during this strong seller’s market:

• Submit pre-approval and proof of funds documentation. If your pre-approval letter is from an out-of-area broker or lender, get a local pre-approval instead. We can help with that. Match your pre-approval letter to your sales price and date it the same day as your offer. (Note: some brokers require proof of pre-approval in order to visit a home.)

• Have a pricing strategy. The exact dollar figure is not always the most important factor. But do not offer less than list price. Realize you may need to offer more than the amount the seller is asking, or put more money down.

• Don't request favors. This is not the time to ask the seller to give you the refrigerator or washer/dryer, part with fixtures, or paint the front door.

• Delay buyer possession. If it is customary for the seller to move at closing, give them a few extra days to move. Another buyer probably won't think of this maneuver, and the seller will look more kindly upon an offer that lets them move at their leisure.

• Make the process easy. Waive financing contingency; waive or cushion the appraisal contingency.

• Work with the seller’s agent to prepare the best offer. If we know what the seller is looking for from the start, we’ll increase your chances of hitting the mark with your offer. Saving the listing agent time by preparing an offer the seller is more likely to sign, means the agent might be more inclined to recommend your offer over another that needs a counteroffer from the seller to compensate. If you want to be the first offer, the best offer, and the only offer the seller will accept, your bid needs to match the seller's expectations.

Understand Home Appraisals

If you are obtaining a mortgage to purchase a home, a bank appraisal is necessary.

Why? Because your lending partner is going to be highly invested in your purchase. For instance, if you are putting down 5%, the lender is bringing 95% to the closing table. That’s a lot of money!

Understandably, your lender will want to do some research on your future home to make sure it’s a solid investment. To do this, a bank will send out an appraiser to determine the fair market value of your property based on recent sales and comparable market data.

An appraisal is the best way to estimate your property’s fair market value based on the location, condition and recent sales of similar homes in the surrounding area. Beyond an estimate of how much your property is worth, an appraisal also indicates the amount a lender will let you borrow for a property.

An appraisal directly affects the amount of mortgage loan you can get because your lender gives you a home loan based on the appraisal’s estimate of the fair market value of the home. It keeps the lender from lending you too much money and keeps you from borrowing more than you need for a particular home.

What happens if the home appraises for less than the purchase price?

When your home appraises for less than its purchase price, it affects your mortgage, and can affect your contract, too. Here are a few potential outcomes:

• Seller and buyer renegotiate a new, lower home sale price

• Buyer increases the down payment to meet new LTV and down payment minimums

• Seller and buyer cancel the home purchase contract

• Buyer or seller requests an appraisal rebuttal (see below)

Remember that mortgage lenders use the appraiser-determined value to input the “value” part of your mortgage’s loan-to-value (LTV) calculation.

If the appraised value is less than the purchase price, lenders use that value to determine your LTV. Unless the seller agrees to lower the price, you will have to increase your down payment to get the same mortgage and interest rate.

The possibility of a “bad appraisal” is among the reasons home purchase contracts are often written with an appraisal contingency. Should the home fail to appraise for its contracted purchase price, the contingency clause allows buyers to re-evaluate and, potentially, walk away.

Why would a home appraisal come in low?

Sometimes the appraised price comes back lower than the agreed-upon purchase price. Let’s say you offered $390,000. After signing the purchase agreement and moving forward with your financing, the bank appraiser determines that the value is only $380,000. Why does this happen? There are a few reasons:

• Bidding wars: In competitive housing markets where there are multiple bids, the demand on a property can push the price beyond what an appraiser determines it is worth. Appraisers work off historical data and need to back up your purchase price with recently sold comparable houses.

• Bad timing: Seasonal peaks can be another culprit. For example, early spring is the most common time for low appraisals in New Jersey. The nice weather gets buyers out of the winter slump, and all the fresh inventory and activity can drive prices upward. This makes it tough for appraisers who have to pull from winter sales to justify current values and seasonal pricing spikes.

• Poor appraiser: Another reason your appraisal may come in low is if the appraiser missed the mark. For most residential transactions, you can’t choose the appraiser, because as the buyer, it’s a conflict of interest. But if the appraiser is new at the job or from out of town, they may make some oversights and come up with an opinion that doesn’t make sense.

• No comps: Appraisers use historical data and comparable homes to build a case about value. But in some situations, there aren’t enough comps to justify pricing. In these cases, the appraiser will be conservative.

What do I do if the appraisal is lower than the purchase price?

A low appraisal is bad news because the lender will only provide a loan up to the appraised value, overriding your agreed-upon purchase price. Going back to the example provided earlier, who covers the $10,000 discrepancy between your offer of $390,000 and the appraisal of $380,000?

Your options: There are a few things you can do. First, scrutinize the appraisal. Do you see any glaring issues? Did the appraiser miss something or overlook a perfect comp? Speak with your lender to see if there’s anything you can do to get a second opinion and revisit the report. You may want to order a new appraisal if things are really out of whack.

What if ordering a new appraisal doesn’t seem like the way to go? Your options:

• Find the money: If the seller isn’t motivated or has plenty of backup offers, they may tell you to take it or leave it. At that point, you need to decide if you can put the extra money down to cover the difference. Putting more money down will offset the low appraisal.

• Reconfigure your financing: What if you don’t have the money to pay out of pocket? You may be able to work with your lender on a new program that frees up some cash. Rather than putting down the amount you intended, you can put down a little less and use the extra cushion to close the gap between the purchase price and the appraisal price.

• Terminate the transaction: If all else fails, and if you have a financing contingency.

Up Next: Check out our Pitfalls to Avoid for First Time Home Buyers >>>>>

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