What a home buyer should know...
Before we discuss key preparations for buying a home in a sellers market let define a “Seller’s Market”.
We know a “Seller’s Market” is when the seller has a disproportionate advantage in the sale of a home. Although Phoenix, AZ has been defined to be a “Sellers Market “ you will not find this to be applicable to all markets and areas of the valley. The following in general (not limited to) fits the profile of what has been determined as a sellers market in Phoenix, AZ:
Cities: Mesa, Chandler, Queen Creek, Gilbert, NE Phoenix, NW Phoenix
Price range: 350k and under
Dwellings: Single Family Homes
Supply: Less than 3 months of inventory on the market
Condition: Updated, Quality interiors, Modern, Clean
Exterior features: Garage, Pool, Manicured landscape, High rated schools, Freeway access, Well kept neighborhoods
A seller’s market is not limited to the list above however meets the overall qualities of the homes sold that receive multiple offers within the 1st day of availability or sale within 15 days.
Here are things to consider and steps a buyer can take to be successful in purchasing a home in a sellers market in Phoenix, AZ.
Step 1: Get Pre-qualified
There are so many factors in pre-qualifying that are constantly changing every month. Its important to partner with a reputable lender. A lender that does not over promise and under deliver. A thorough investigation of debt, and income with supporting documentation at the initial stage of a buyers pre-qualification is critical. A complete and thorough pre-qualification increases a buyer chance to receive a final approval when time to close and move into the new home. The instant “yes” without truly reviewing a buyers debt and income will result in a final “no” when the moving truck is in front of the new home.
Often buyers believe they can prepare for credit worthiness on their own prior to contacting a lender. I strongly suggest contacting the lender while working on your credit as they have the complete road map to what is required of a buyer.
For example disputing delinquent files is not advisable as it use to be, or closing or completely paying off a line of credit can also negatively impact your credit worthiness.
Even if you have a high credit score, make a good income, and have a sizable down payment prepared, consulting with a lender prior to your home search is important.
Step 2: Prepare for the down payment and closing cost
If the buyer is buying a home for the first time or purchasing again after loosing a home, there are many grants and bonds that will give you your down payment or a portion of your down payment for FREE. The requirements typically are the home is the buyers primary residence, the buyer will live in the home for 3 years and a home buying education class.
Seller’s selling a home at FHA loan price point are in some instances prepared to assist the buyer with their closing cost. Keep in mind if the buyer is bidding against another buyer that does not need closing cost assistance this may cost the “win” in getting the assisted offer accepted.
In addition to the money a buyer has saved for the down payment and closing cost, a buyer is also able to receive a “cash gift” from a family member or employer with certain loan programs.
Be sure to keep a paper trail of deposits and income, preferably in one account as these accounts and funds are verified over a period of time by the lender.
Being financially prepared and having a strong negotiating strategy will make the world of difference, especially when in a multiple offer situation.
Seller’s seek the most financially prepared and credit worthy buyer to lessen the chance of the buyer not being able to complete the purchase when time to close.
If you desire to see a break down of an estimation of funds needed to close contact myself or a local agent to provide you a free estimate.
Step 3: Prepare to meet with a Realtor
In preparing to meet and interview a Realtor it is important to be able to provide a Realtor an outline of a buyers goals. Have a prepared “Must Have” list of the things that are critical to have in the home as it relates to lifestyle and needs. The “Wish List” is composed of items that are desirable but not a deal breaker, i.e., white cabinets. White cabinets are definitely a hot trend however can be easily painted or replaced. A “Must Have” example would be a separate tub and shower, as this change would be more of a challenge and costly to convert.
Having a consolidated list when there are 2 decision makers helps a buyers agent to effectively help select the perfect home and understand a buyers needs prior to actually looking at the homes together. This preparation helps set everyone up for success. It is important to be able to quickly identify the right house and move on the home quickly.
Step 4: Understand Reality vs Television
We all love the “reality” TV shows on HGTV but truth is it’s not reality at all.
If a buyer find a home they really love and meets all of their needs, they should abandon the idea of needing to see lots of homes prior to making a decision. Purchasing a home in a market where there are more buyers than homes available to purchase can lend to be very risky in the expectation of a better home that cost less or the same to come along later.
When a home shows nicely in a market with limited homes available you can expect to have more than one person to be interested in the home. Making a timely educated decision can save you from delaying in being the 1st person to make an offer. Sellers see a decisive buyer a serious buyer and will often compare incoming offers to the 1st offer received.
A buyer should be prepared to make more than one offer and allot additional time to the “home finding” stage.
Step 5: Forethought on Inspections & Repairs
Let’s say a buyers amazing agent gets closing cost assistance in the amount of $5,000.00 for the buyer. The agreed purchase price on the home is $200,000. As a buyer the net purchase price is $195,000.00. The seller is receiving $5,000.00 less.
Taking the scenario above the buyer has completed their inspections and found a few minor items wrong with the home and would like the seller to make the repairs. The sellers will consider the cost of the repairs in addition to the closing cost assistance of $5,000.00 given to the buyer. In a market where the seller has an advantage the seller may opt to not make minor repairs in addition to providing closing cost assistance.
Keep in mind the inspection period is a time where the buyer can make the choice not to proceed with the home based on the condition of the home and repairs needed or any other material fact discovered during the inspection time frame.
Step 6: Considering the Market Value of the Home
The final check mark needed before a buyer and the lender can proceed with the finalization of purchasing the home is to determine the current market value of the home as it is compared to the purchase price of the home.
The lender will send out a 3rd party Appraiser to determine the fair market value of the home. The lender will only lend the amount determined by the Appraiser.
The Appraiser will look at like properties within a 1.5 mile radius, sold and currently available compared to the home being purchased, the subject property. There are variance the Appraiser uses if there are limited comparable’s.
When making an offer on a home that is receiving multiple offers it is tempting to make an offer considerably over the asking price to “win” the bid. It is important for a buyer to work closely with their Realtor in determining a sensible offer on the home. If a buyer offers more than what the home appraises for, a consolidation of the difference between the purchase price and the appraisal amount must be made. The buyer can pay the cash difference, the seller can reduce the price of the home to the appraisal amount or the buyer and seller can negotiate somewhere in the middle. The lender will not lend on the home until the matter is settled.
Partnering with an agent that is familiar with strategies to set a buyer up for success and has good working relationships with fellow agents will be a buyers number 1 arsenal in successfully purchasing a home in a sellers market. For more information or to meet for coffee to discuss how I can partner with you in purchasing or selling a home please call text or email Kalencia Sanders with Realty ONE Group at 480-233-3102 or KalenciaAZRealor@gmail.com.
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