Seven Tips for Home Buyers
If you’re looking to buy a home in the Boston area, prepare for a bidding war. (Photo via ThinkStock.)
I went to a broker preview on Friday at a small Cape house in Lexington. It is priced at $350,000, making it the third least-expensive single family house in town. I walked through at a breakneck pace. I could not wait to get out of there — the pungent odor of urine was overwhelming. And that was only one of the issues with the place.
The listing agent received over 20 offers on this house by Monday.
In a market like this, a buyer has to be ready, willing, and able to jump into a bidding war. Sellers, are you reading? Have you been waiting for the right time? Well, if you’re in one of the towns with good schools close to Cambridge or Boston, you might want to check in with your agent and get an updated market analysis. Because where I am, there are not enough houses on the market to meet the demand of buyers.
If the idea of getting into a bidding war with even one other buyer is reprehensible for you, I recommend you sit out this spring. If you have not been looking for months, analyzing data with or without the help of an agent, lost out on a few offers, and have months left in a rental or a home to sell, this is probably not a good time for you to buy. If you can not square the reality of the markets in, say, Lexington, Newton, Brookline, or Arlington with the years of dour national news you have been hearing, then take your time. Go to open houses. If you fear another housing bubble, be a spectator for a while. Now may not be your time to purchase.
But if you are someone who is in it right now, in it to win it, to get a place with some space in a town you love, at a time when money is cheap to borrow, then let me offer some tips from the point of view of someone in the trenches of a heated market.
- Get a real estate agent (unless you’re very, very experienced). Hire a real estate agent, one with experience in a few adjacent towns that you are searching. An agent with whom you have a good rapport, someone who knows how to negotiate and point out flaws as well as the positives and possibilities within a house, is worth keeping. A good agent starts to know what you want as well as you do — and may even know what you will like before you do. An agent should save you time. You want someone to help narrow down the search. You want a super-responsive agent, one who is constantly communicating, answering emails and calls within the hour or two, even if they can’t drop everything to jump from to show you something in Melrose at 3 p.m. and Natick at 6 p.m. You are hiring the agent as a consultant, not a salesperson. The commission for a buyer agent is usually built into the listing commission that the seller pays. If you do not use a buyer agent, the listing agent will not have to share the commission, thus getting twice as much money. The selling agent will be quite happy to help you in such cases. You might even feel you have an edge. But your best interests will not be foremost. They have fiduciary duty to the seller. Disclosed dual agency, while legal in Massachusetts, almost never works well for any of the involved parties.
- Don’t be afraid of a buyer agent contract. They are there for your protection as much as the agents. This is a business relationship. Contracts delineate the scope of the relationship. Agents are not expected to work with sellers without a contract, so why should they be expected to work with buyers as free agents?
- Know where you want to live. If the agent has to take you a bit outside of their usual coverage zone, so be it. But unless you are a rare exception, you should probably be concentrating on no more than three towns. If you have not narrowed it down to at least which towns you would want to live in, it is going to present a real challenge for you in ascertaining value and the level of competition between buyers from town to town, week to week.
- Be wary of discount agencies. It can be a mistake to go with a discount agency that’s known more for its rebates of the buyer-agent-side commission than any substantive level of service. Most (not all) of these agents are all over eastern Massachusetts, and there is no way that they can know what’s really happening on the street level within any particular town. When making the biggest investment purchase in your life, it would be shortsighted to think in terms of a rebate over any measurable level of service. Many times, such agents introduce themselves to buyers for the first time in the entry of the house they are showing. If you don’t have time to have a consultation in an office or cafe first, then your search is likely going to be an uphill battle. Get out in front of it.
- Ask the right questions and make the right offer. Once you are ready to make an offer on a house, the first question will be: how long has it been on the market? Then, how long has it been at the current price? If the house has been lingering at the same price, you should be in a good position as a buyer to offer a low price. Don’t be ridiculous, though, and offer something so far off the asking price — like $500,000 for a house priced at $675,000. Any seller in their right mind would drop the price even $50,000 to attract more buyers than work with one crazy low-baller in exclusivity. If you are really trying to make a deal, offer something at least high enough to engage the average rational human.
- Be prepared to set a value on a house that may be over asking price. If the house just came on the market and your buyer agent tells you they have one offer or more, be prepared to set a value on the house that may be over the asking price. Many towns around here have bidding wars as par for the course this spring. Pricing listings is an inexact science. Last week’s setting of the Facebook IPO price offers an interesting analogy. It was like a perfectly priced home. Buyers came in and bought it at the initial price, no more. But perfect pricing can be, paradoxically, a less-than-perfect way to price a house. Sellers will have better results in most markets by pricing it just a little bit under, to encourage urgency and emotion. Buyers start to bid up the price and remove contingencies. So, if you are a buyer in such a situation, be prepared. If you are gung ho on the house, go ahead and have a home inspection before you make an offer. A seller and their agent will be happy to let you do so, or they should be, anyway. Get it all out of the way. If you feel solid about the house, your offer will be free of an inspection contingency and will look great compared to the competition.
- Pricing can be inexact. Don’t get hung up on relation to the asking price, never mind where prices were a year or even six months ago. Values shift primarily on supply and demand. A house is worth what one or more people are willing to pay for it at a specific time. True market value is obtained in such situations. These buyers are looking at their own housing options and needs and making the calculation that the house is worth X–dollars. It may not be the same value as yours. Be prepared to come in strong and increase to the point at which you would feel comfortable walking away. More than one set of our clients stopped short of that and ended up frustrated in the long run, regretting that they did not come up one or two percent in price to get the house they felt was right for them.