Real estate professionals say they are surprised how the residential market has rebounded from the initial impact of the COVID-19 pandemic. When it began, there was a lot of unease about potential effects on the market—would there still be homes for sale and people who wanted to move? Now, the St. Louis area (and the nation in general) is seeing a trend of low housing inventory that presents opportunities for sellers, but serious challenges for buyers.
Janet Horlacher, a principal with Janet McAfee Real Estate, says that in a market like this, the most effective tools in the buyer’s arsenal are preparation and communication. “You have to be resilient, too, because there are no second chances,” she says. “We have buyers who have written 10 or more offers but lost out on all of the properties because there is so much competition. It’s discouraging for them, and it’s the toughest phone call an agent can make.”
She says the early bird usually wins the home, so buyers need to grab a showing appointment as soon as the property they want hits the market. Of course, that can be a challenge in the current environment, where showings must be scheduled one buyer at a time for safety reasons. “There usually are more people wanting to tour a home than there are available time slots, so it’s important to make that appointment early,” she notes.
Horlacher says more buyers have been adding escalation clauses to their contracts recently. “This clause says the purchaser will pay X amount over the highest competing offer, up to a specified cap,” she explains. “It works in the buyer’s favor a good deal of the time, but not always. Sellers may push back and request that all potential buyers submit their best and final offers. This means agents need to counsel clients to decide what their absolute highest price is going in.”
As a buyer, you shouldn’t expect sellers to disclose the exact terms of competing offers, Horlacher says. Still, it may be possible for the listing agent to give the buyer’s agent some idea whether an offer is within range. “This can alleviate a lot of stress and anticipation for buyers, so they’re not waiting anxiously all weekend to hear if they won the house,” she says.
Another possible tactic is for buyers to revise their price ranges downward and look at homes they may not have considered otherwise. “In a competitive market, a house may sell for well over the list price,” Horlacher explains. “If a buyer’s top dollar is exactly the list price, it’s likely they will not win out. Buyers may have to look at lower-priced homes so they can afford to go well over the list price.” Kevin Goffstein of Berkshire Hathaway HomeServices Alliance Real Estate says even less desirable properties that wouldn’t have sold well in previous years are getting snapped up due to high demand. “We’ve seen some homes sell on the first day they are listed,” he notes. “I know of one in the under-$300,000 range that had 78 showings on its opening day. This is why it’s so important to educate yourself about the local market, be flexible about what to buy, and work with an agent who can write a competitive contract.”
Yet another strategy is to eliminate home inspection contingencies. “To do this, agents must know the risk tolerance of the buyer,” Horlacher says. “Is the person willing to purchase a home as-is, with no repairs done, even if there are defects? Some buyers bring their own inspector when they first tour a home, not for a full formal inspection, but just to point out any red flags. Then the buyer may feel more comfortable eliminating or curtailing the inspection contingency.” (Horlacher points out that she doesn’t recommend doing away with a regular inspection, especially for inexperienced buyers.)
Finally, on a competitive property, have your agent write a great offer with terms the seller wants, Horlacher advises. “There is no excuse for not knowing seller preferences on closing dates, inclusions and exclusions,” she says. “Provide enough earnest money so the owner knows you want the home; it’s the glue that holds the deal together. Don’t give them a reason to discount your offer on terms that are easy to accommodate.”
the mortgage perspective
Kyle Cullen, a senior mortgage banker with Flat Branch Home Loans, has additional advice for people heading into purchase negotiations. “For first-time buyers especially, have a full mortgage preapproval done so there are no contingencies before you write a contract on a house,” he says. “The main concern for many buyers right now is that they simply won’t be able to find a home, so it’s important to do everything you can to be ready. Often, by the time a ‘for sale’ sign appears in the yard, the home is already turning over. Pretty much everything that’s on the market is selling.”
Cullen advises buyers to stay on top of interest rate changes because they affect how much you’ll pay for a home in the long run. “We saw record low rates in the last year, but they will be gone soon,” he notes. “Say you are thinking about buying a $200,000 home, but then you decide to wait. If the interest rate goes up 1% in the meantime, you could end up paying an additional $35,000 for the home over a 30-year loan period.”