What Buyers Need to do to Buy a House in this Market
The Greater Seattle real estate market likely has never been hotter: bidding wars are abundant, prices are up, and you have to be ready to move really fast. Homebuyers must go in hoping for the best but ready for disappointment since, there are often a lot of other buyers interested in the same property.
While a plethora of house-seekers are on the prowl to find their ideal home, many do not know how to prepare for the home buying process. Luckily, Ewing and Clark’s Luxury Real Estate and Capitol Hill expert Kristine Losh provides her list of tips for those Seattle area home buyers.
Meet the Seattle Housing Market at its Level
The Seattle real estate market itself is crazy and meeting the housing market with that same energy is key in getting that dream home. “Crazy gets the house,” as Kristine Losh says. “While obviously being “crazy” to get a house is an exaggeration, these days being the winning bidder will often require you to do things that make you uncomfortable and in a more balanced market I would not advise.” she states. That could mean offering more money than the comparative properties support and/or making terms that current sellers are expecting. We will discuss more below, but waiving financing and/or releasing earnest money are a few examples of terms that may need to be added to get the home you desire. However, Kristine finished by saying, “The right house will come around. So, if you are not finding what you like; then do not make offers on properties just to get a home. Breathe, even take a break from your home search. We will find the right home in due time.”
Be Prepared to Waive Everything when Buying a House in the Seattle Metro Area
Contingencies in real estate are put in place to protect both the buyer and seller, but mainly a buyer. Once a purchase and sale contract is signed by both parties, the seller is generally obligated to sell their property, while the buyer may have several ways to get out of the contract without penalty if contingencies are in place. For example, in a normal real estate market it is common to have an inspection contingency, financing contingency, perhaps a title contingency, etc. Each vary with the ease of which a buyer can terminate the contract, but they all give the buyer some ability to do so and suffer little to no penalty. Obviously, these contingencies add steps in the process when buying a home. More importantly it adds risk to sellers, risks sellers do not want to take when there are far more buyers than sellers in the current Greater Seattle real estate market. Thus, sellers are likely only considering offers with no contingencies when more than one buyer makes an offer on their home.
Have a Real Estate Broker’s Due Diligence Checklist: Oil Tanks? Inspections? Sewer Lines? House History?
Just because there are no contingencies, does not mean a buyer should not do everything in their power to protect themselves from risk when acquiring a Seattle home.
In most cases, sellers are obligated to disclose problems with their homes to potential buyers. Nevertheless, it is the responsibility of the buyer to investigate any disclosed or undisclosed issues that might be of concern. Your broker will be your best friend in this process. However, not everyone does their due diligence, and it is important to ask certain questions such as:
- What inspections have been done?
- What is the history of the house?
- How has the house been heated now and in the past?
While it is important to ask these questions, inspecting the home is one of the best ways to protect yourself. In a balanced real estate market, buyers do not have to spend money to investigate prior to getting the home under contract, but in a hot Seattle real estate market, buyers often need to decide to inspect the home prior to even submitting an offer. Unfortunately, this can become expensive if a buyer makes offers on multiple homes. However, the benefit is that big ticket repairs can be unveiled and provide buyers with an eyes wide open approach in making an offer. For example, if the entire sewer line needs to be replaced then perhaps that $100k escalation you were planning on will drop down to $75k, or you decide not to make an offer at all.
While these details may seem minor in comparison to the greater view of things (ex. cost of repair vs cost of overall home), having a meticulous mindset when going over the property with the broker will save one multiple headaches in the future.
Go High on Earnest Money AND don’t be Afraid to Release It when Buying a House in the Seattle Metro
Earnest money is a deposit a buyer puts down on the house when a purchase and sale agreement is accepted. The earnest money/deposit is there to protect the seller if the buyer backs out without any contingencies. With a “clean offer” or “contingency free” offer, a seller will often keep the earnest money if the buyer fails to perform. The stronger the earnest money, the more protection there is for a seller if something goes wrong. Furthermore, earnest money will go toward the purchase price of the home; thus, it is a good way for buyers to make their offer stronger with no additional cost to the buyer. Thus, in a hot real estate market in the Greater Seattle area, earnest money tends to be higher. While it tends to vary by location, typically, earnest money is around 1% to 3% of the sale price, but in Washington State it can be as high as 5% without having to prove specific damages.
Ultimately, going high on earnest money is a strong statement showing a high level of commitment from the buyer and making the offer more attractive to the seller. Thus, 5% is what many agents will recommend. Earnest money is typically held with the escrow office until closing. A new trend has many buyers releasing earnest money directly to the seller’s pockets upon mutual acceptance of an offer. It should be noted that there are risks to the buyer in doing this and language needs to be added for the ability to get that earnest money back if the seller is the one who refuses to follow through with the sale.
Financing with Quick Turn-around Time. Lenders are Key in Buying a House in the Seattle Metro Area
“Cash is king” is an old saying that rings true in a hot Seattle real estate market. Cash is desirable for sellers because the sale can generally close quicker and it minimizes their risk that a buyer cannot close. It is amazing how many home transactions are for cash. Several years ago, it was estimated that 38% of all Seattle-are home sales were for cash. Nevertheless, if you cannot afford to pay cash for a home, all is not lost since the majority of home sales are financed through a lender.
When obtaining a loan for a home in a hot real estate market, buyers need to do whatever they can to minimize the risk to the seller when competing against other buyers. At the same time, buyers must also protect themselves from not being able to close on the home. Many buyers are waiving their finance contingencies even though they are obtaining a loan. The risk to the buyer is if they cannot finance the sale, then they lose the home and the seller keeps the buyer’s earnest money as damages. Therefore, it is critical to have a discussion with your lender about the risks of waiving either the finance or appraisal contingencies.
Most sellers do not want damages, they want their home to close. Quick turnarounds are another way to boost the desirability of your offer because the risk of a change in the market or other issues are reduced. Getting pre-underwritten is now preferred over being pre-approved which is a step up from being pre-qualified. Essentially, being pre-unwritten means the lender has done a thorough review of your financials and have approved your loan amount leaving less chance for surprises on qualifying for loans. Beyond being pre-qualified, there are other avenues such as non-bank lenders but these options can be expensive and are generally a last resort option.
Greater Seattle real estate agents often can recommend a lender to their clients, but a buyer should find a lender of their choice who they are comfortable with as long as they can help the buyer move quickly in the current real estate market.
On your mark, get set, GO! A Race to get the Home
Buyers must be ready to act. When a house comes on the market and it fits their criteria, they should see the property in person as soon as possible. If they like it, they need to jump into action with their agent’s help; get the home inspected, write up an offer, have their financing ready to go, know what risks they are willing to accept and which they want to mitigate. Time is of the essence, and if a buyer waits to prepare until they find the home of their dreams, it most likely is too late.
What Buyers Need to Do in A Hot Seattle Area Real Estate Market
Buying a home can be stressful and these issues can be magnified in a hot real estate market. Your agent will work tirelessly to help you get your home, but the homebuyer must also need to stay on top of it. Be ready for your agent’s phone call, be willing to go see a new listing as soon as it hits the market, have your finances/loan application in order, work with your real estate agent to get your due diligence done, ask questions, decide on what steps you are comfortable with to get your home (waiving financing, how much earnest money, etc), and then get comfortable with the process. If you get lucky and get a home on your first or second offer, do not have buyer’s remorse. For every buyer that gets their offer accepted on the first couple attempts, know there are many buyers making their 10th plus offer.
It is an exciting time to buy a home, align yourself with a good, experienced real estate agent, and the process will work out for the best.
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