How Can a Home Buyer Win in this Hot Charlotte Sellers’ Market?

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.