First-time homebuyers: buy your first house now
Well, it’s better to take action. And we mean now! More than half of home sales (52%) are expected to go to first-time buyers, especially millennials (ages 19 to 34), many of whom are leaving urban rentals, according to a study by the National Association of Realtors. This means that competition – and bidding wars – could become fierce in the spring for these “newbies” in sought-after areas.
Even though there will be less inventory this winter, there will also be less competition per unit and a higher percentage of motivated sellers.
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Sellers: Hire the right agent
Often, the best investment a seller can make is the time spent researching agents. A bad hire can cost sellers tens of thousands of euros and months of waiting.
Start by reviewing an agent’s online marketing materials and listings. Are there good photos or videos? Is it “pop”? Are the descriptions accurate and complementary without sounding exaggerated?
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Next, look at agents’ profiles on LinkedIn, Facebook, and other social media, and be sure to read online reviews. What kind of vibe does an agent give off?
Limit your search to three agents and interview them all, ideally in person. Ask for reports on sales activity, existing listings, and average days on the market, as well as required local compilations.
An experienced agent will also know the best times for open houses and how to initiate a bidding war if the market allows. Never agree to a listing contract of more than 90 days in a seller’s market. You can always extend it.
Buyers: There’s more money to lend
Those who couldn’t secure a mortgage during the crisis because they didn’t have 20% to put down can now find affordable financing again.
Borrowers with a FICO score as low as 690 are now obtaining conforming mortgages (those under $417,000).
A telling sign: About two-thirds of mortgage refinances were approved in the fourth quarter of 2016, compared to only half at the end of 2014.
However, borrowers who do not have a 20% down payment will likely pay private mortgage insurance, or PMI, until they reach the 20-25% equity threshold.
The best rates go to those with a credit score over 800, although 750 borrowers receive virtually the same terms.
Unfortunately, those enticing interest-only loans are also on the menu. Avoid them. They are affordable at first since you are not paying down the principal, but years later, well… just look at the Great Recession of 2008.
Sellers: It may be a seller’s market but…
Home sellers can do several simple things to improve appearance, increase buyer interest, and enhance their home’s profile:
Renew selectively: Instead of undertaking major renovations where sellers may recoup only 60% of the investment, make slight transformations throughout, keeping an eye on the kitchen and bathrooms. It’s much more cost-effective.
Clean, clean, and clean again: It’s hard for buyers to imagine themselves in a dirty home. Scrub floors, bathrooms, kitchens, windows, and walls, and make sure to clean, vacuum, and deodorize carpets. It’s simple but effective.
Depersonalize, declutter: Show the space, not the contents. Put away family photos, children’s school projects, and surplus artwork, and store bulky and worn furniture. Organize your closets to appear half-empty.
Brighten up: Think bright and cheerful. Open curtains and add brighter bulbs in dark areas. Repaint where necessary, but use neutral colors.
Renters: It may be time to buy
In many cases, rents are rising faster than home values, but mortgage rates remain low. This, along with the fact that renters now make up 37% of households (the highest level in 50 years), seems to indicate that the exit of renters to homebuyers is imminent, especially if they plan to stay in place for five to ten years after purchase.
There are unlimited buy vs. rent calculators, like the Bankrate calculator, that allow renters to compare affordability. But no gauge accounts for human behaviors, such as renters’ reluctance to reinvest what they have saved by not paying property taxes, insurance, maintenance, etc. Buying a home essentially enforces that discipline.
If you’re a buyer, don’t assume the house is yours
Don’t count on a done deal or other verbal promises from listing agents until you’ve signed a contract.
In the country’s hot markets, selling agents give false hopes to buyers and use their offers to drive up the price for preferred buyers who they think can pay more and close faster. Consider other homes.
Strategies such as pre-approval (as opposed to pre-qualification), proof of funding, closing flexibility, and the always risky practice of waiving inspections and unforeseen repairs can help sway sellers.
To have more weight, tell sellers you’re willing to “escalate” or exceed all offers up to a certain limit. Some agents even advise buyers to write “love letters” to sellers to express how much the home would mean to their family.
Sellers: The grass is always greener…
… in the yards with a “sold” sign. It’s generally not necessary to make significant improvements before selling, but it’s essential to make the exterior a little greener.
Surveys show that strong curb appeal can increase prices by 10% or more. Greener grass, whether from new sod or fertilizer and water, is a must.
New shrubs, plantings, and flowers also give a welcoming impression. Sellers typically see a 100% return on the money they invest in curb appeal.
Another form of green and sustainable landscaping has become a value add for buyers. Native plants, native grasses, and perennials that require less water and attention fit the bill.
Do local research or ask a landscaping professional for simple “greening” tips.
Sellers and buyers: Know the state of your market
A balanced real estate market is defined as a market with an average inventory of 6.5 months, according to research from the Texas A&M University Real Estate Center. When inventory stays below balance, sellers have more control over prices and terms, and the area becomes a seller’s market.
When inventory remains well above the stasis point, you have a buyer’s market where sellers must take price cuts, credits, and discounts more seriously. Of course, these averages do not necessarily reflect demand in certain desirable and undesirable sub-markets.
Go online for data on home sales in this market by state or consult a local agent, a business journal, and a daily newspaper that you can read online. In 2016, the average housing inventory in the United States was below five months.
Sellers: Selling a house in spring?
Start making preparations now. First, grab your camera or smartphone and do an outdoor photo shoot in the fall, with the changing leaves.
This is a much better way to showcase your home than waiting until the end of winter when everything is still dead, brown, and muddy. Also, take some landscape photos after the first snows, ideally on a sunny day, to show how cozy your home is in winter.
Also, do a preliminary inventory. Check your attic, closets, basement, and garage to see which stored items you want to keep, donate, or sell in the spring. This will help you determine if you’ll need a storage unit when your home is on the market and if there are any problematic areas that need repairs or care.
This is also the time to start discussing financing options with a local lender and interviewing potential listing agents who can also provide additional preparation advice.
Buyers: Moving near a waterfront?
It’s best to consider weather conditions and insurance. Major hurricanes and flooding over the past twelve years, particularly Hurricane Katrina and Superstorm Sandy, have plunged the national flood insurance program into a $23 billion hole, leading to a spiral of flood insurance rates.
Changes to FEMA flood maps aggressively expand flood zones, particularly along the East Coast and Gulf Coast, forcing hundreds of thousands of homeowners to purchase flood insurance for the first time and others to pay thousands more each year.
Some parts of Florida experienced a 20% increase in 2016 and will likely see similar hikes in 2017. Insurers are also imposing coverage caps, so there is no guarantee that you will be fully restored after a disaster.
Some home sellers and their agents do not disclose these realities, which is convenient. Buyers will therefore need to ask pointed questions and do their own research.
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