Mistakes Borrowers Can Make in a Buyer’s Market
As it stands, there are more new homes for sale than ever before. With such a large inventory, buyers are on control.
Go ahead and make a reasonable offer on that new home. There’s a decent chance the seller is anxious to make any deal. In the process, however, be wary of the following mistakes:
FAILURE TO GET PRE-APPROVED IN WRITING FOR A HOME MORTGAGE. Most home buyers need to obtain a home loan to purchase their house or condo. Smart buyers shop for a mortgage before searching for a home.Keep in mind that the smartest home buyers get pre-qualification in writing by an experienced lender so they know the maximum mortgage amount available. Make sure you get a letter stating as much.
FORGET TO WORK WITH YOUR OWN BUYER’S AGENT. The second major mistake some home buyers make is they forget they need their own buyer’s agent, says real estate expert Bob Bruss. It’s easy for prospective buyers visiting weekend open houses to let the listing agent they meet prepare the purchase offer.
Whether that listing agent acts as a “dual agent” representing both the home seller and buyer (an inherent conflict of interest) or the listing agent represents only the seller (and nobody represents the buyer), such a situation is NOT in the home buyer’s best interest.
To find a reputable buyer’s agent, home buyers should ask friends, relatives and business associates for recommendations of local agents.
However, home buyers should be careful not to sign an exclusive buyer’s agent contract for longer than 30 days, in case the recommended buyer’s agent turns out to be ineffective.
FAIL TO INSIST ON A COMPARATIVE MARKET ANALYSIS (CMA) BEFORE MAKING A PURCHASE OFFER. Amazingly, many home buyers still follow the old rule: “Offer 5 percent below the asking price.” That makes no sense.
Instead, buyers should ask their buyer’s agent to prepare a written comparative market analysis (CMA) before making a purchase offer. This CMA is the same form the listing agent prepared for the home seller.
It shows recent sales prices of comparable nearby homes, asking prices of similar neighborhood listed residences, and the asking prices of recently expired competitive listings (usually overpriced).
With the help of the buyer’s agent, smart borrowers then discuss the pros and cons of the homes on the CMA before arriving at a reasonable purchase offer price.
NEGLECT TO INCLUDE TWO KEY CONTINGENCY CLAUSES. During the hot housing markets of 2005 and 2004, it was common for home buyers to make “all cash, no contingency” purchase offers. The current buyer’s market in most cities has changed that foolishness.
Today’s smart home buyers include at least two purchase-offer contingencies: (a) a satisfactory lender’s professional appraisal of the home for at least the purchase price, and (b) the buyer’s approval of a professional inspection report to be obtained at the buyer’s expense.
Depending on local custom, additional inspection contingencies might include termite or pest control, building-code compliance, energy efficiency, and radon.
A controversial contingency makes the home purchase contingent on the buyer’s sale of his/her current residence. Many home sellers refuse to accept such a contingency. Others will accept it but with a 48-hour release clause if a better purchase offer from another buyer materializes.