Anyone who has even a passing interest in buying a home in the Charlotte metropolitan area has discovered that the current market is very low on inventory and high on buyers competing to purchase that inventory. This has continued to put upward pressure on prices, created “bidding wars” between buyers, and forced successful buyers to offer concessions such as higher due diligence fees (see below for an explanation of due diligence fees) and a willingness to contract for a home in “as is” condition. Combining this with the continuing upswing in mortgage interest rates, which are over 5.50% for a 30 year fixed rate loan at the time of this blog post. So how can a home buyer “win” in this current environment?
The
answer to that question is largely determined by how you define “win.” Win does not have to mean beating all other
buyers in a bidding war to get a home under contract. Even those who have compelling reasons to
find housing quickly in the Charlotte area—those who are being transferred for
work… those who have sold a home into this hot sellers’ market to cash out
their equity and need to find another home… those who want to lock in a
mortgage interest rate before rates climb well above current levels… need to
take a deep breath, do their homework, and make their decisions based as much
or more on reason and analysis than emotion.
Winning should be a matter of making intelligent, strategic choices as
much as simply beating other buyers to a home.
The
above advice should be viewed in the context of reasonable
expectations and an acknowledgment of reality in this market. An otherwise attractive home is likely to go
under contract at or above the listing price in this market. That is just currently a fact of life. But that does not mean that all caution and wisdom
should be cast aside in a mad rush to get something under contract. Competent buyer representation should involve
a comparative market analysis of a home a buyer may be interested in,
establishing a ceiling price above which the buyer is advised to walk away from
negotiations to avoid overpaying. Another
metric well worth consideration is what it would cost to rent a comparable home,
and consideration of the costs and benefits of buying vs. renting in the short
term to allow more time to find a deal that makes sense.
Another
increasingly important facet of an offer in this market is the “due diligence
fee.” A due diligence fee is the
non-refundable fee paid directly to the home seller as compensation for taking
a home off the market when it goes under contract and the buyer has home
inspections performed and mortgage underwriting completed. The due diligence fee is ultimately credited
as an advance payment by the buyer toward the purchase price of the home when
the sale closes. However, if the
contract fails to close for any reason, the due diligence fee is retained by
the seller. It has become increasingly
common for sellers to require higher due diligence fees as a condition to going
under contract. This can be a risky
undertaking on the part of a buyer because it essentially removes much of the
leverage a buyer might have had to withdraw from the contract in the event condition
issues are found in the home after inspection.
A seller is unlikely to agree to repairs or repair credits when he or
she is holding a $10,000 due diligence fee in a hot market because they know
they can retain the due diligence fee, promptly place the home back on the
market and probably have it under contract with another buyer in short order.
Buyers need to carefully consider these issues in consultation with their
agent.
The
bottom line is that, in most cases, it still makes more economic sense to buy a
home rather than rent one. But now more
than ever thorough, careful analysis is critical. A buyer has to have a logical point at which
it makes more sense to walk away from negotiations, and a strategy for making
his or her offer more attractive, without necessarily relying on outbidding all
competition. In this very tough market
for buyers, it is still possible to strike a deal that makes sense in the context
of a specific buyer’s particular set of circumstances. But “winning” needs to be defined in that context,
rather than simply getting an attractive home under contract.
For
more information and for a free search the entire MLS inventory of Charlotte area homes available
for sale, visit www.EricDorerRealEstate.com.
