Today’s housing market is red hot, with homes getting multiple offers and selling above list price in many cities. Sixty-eight percent of U.S. homes sold in July were on the market for less than a month, and the median existing-home price was up 8.5% from July 2019, according to the National Association of REALTORS®.
In conditions like these, it’s natural for a client to worry about losing out to other buyers. But the bigger danger is letting a scarcity mentality hijack the process, luring buyers to overspend or settle on a house that they will regret buying later. Here’s how to coach your client to keep a cool head as a first-time home buyer.
Start With an Authentic Budget
A buyer should get on solid financial ground from the beginning. Figure out how much home you can afford, and get pre-approved for a mortgage before looking at homes. Without one, listing agents and sellers won’t take you seriously, and offers from pre-approved buyers will likely be accepted over yours.
Decide on a price range based on both how much you can borrow and your budget, making sure to give yourself room to breathe.
“I always caution borrowers not to stretch for a home, and to establish a realistic budget that will afford a financial cushion for the future,” Scott Lindner, national sales director for mortgage lending at TD Bank, said in an email. “This is even more important in the current uncertain environment.”
Learn What to Expect Before Shopping
Before you show buyers any homes, walk them through a real estate contract and explain all the terms and what may be negotiated. Then discuss the risks of making specific concessions, so the buyers can decide with which terms they feel comfortable.
“Right now, the emotion is lowest and logic is highest,” says Alicia Holdaway, president of the Salt Lake Board of REALTORS®. “As soon as we look at homes, those are going to swap.”
An experienced real estate agent will guide a client through decisions before they get swept up in the love for a home and the drive to win, Holdaway advises. Then, when making offers, the agent can help a buyer stay grounded.
“It’s so important that buyers work with somebody who can stay steady,” she says.
Be Firm On Needs, Flexible On the Rest
Josh Harris, a certified financial planner and lecturer in finance at Clemson University, said buyers should think deeply about why they want to buy a home. Use those reasons to help the buyer distinguish between the features they need and the amenities that would be nice to have.
Be picky about the must-have items. Recent clients were tempted to settle for a home with a defective floor plan—there was no shower upstairs with the primary bedroom. The agent had her clients walk up and down the stairs and imagine doing that every morning to shower and get dressed. They decided to keep house hunting.
Sometimes first-time buyers expect homes to look perfect, says Stephen Medeiros, president-elect of the Massachusetts Association of REALTORS®. A buyer can repaint, scrape off wallpaper and change things like flooring and countertops.
“A house may not be HGTV-ready, but it can be something that can be improved over time,” he says.
Don’t Let Negative Emotions Prevail
It’s natural to feel anxious and frustrated sometimes when house hunting, but those emotions shouldn’t take over. Anxiety can lead to rush into bad decisions or get stuck and make no decisions at all, says Harris.
Have your client take a break to get some perspective when you’re feeling anxious, confide in a friend who’s outside the homebuying process, and get a reality check from you, as the real estate agent.
A common first-time home buyer mistake is looking at too many homes, Holdaway says. That gets exhausting and can lead buyers to make decisions just to get the process over with.
“They’re sick of looking, and they say, ‘I’ll make it work. I just need a house,'” she says. Narrow the homes you visit to those that meet they buyers’ budget and criteria.
Stick to Price Range and Priorities
There are many concessions you can make to win over a seller. They range from low-risk measures, such as being flexible on the closing date, to high-risk moves, such as waiving the right to request repairs or to back out of the deal depending on the home inspection results. The hotter the market, the more concessions buyers are under pressure to make. Be sure they understand the risks, and don’t waive any protections they can’t afford.
You may have to offer above the list price to compete in some markets, but make sure that offered price is still within your client’s budget. Make sure they look beyond the bidding war to the years they’ll spend repaying the mortgage.
“You don’t want to live for your home,” Medeiros says.
Sticking to the budget may mean they’ll lose out on some homes. But that’s OK.
“There’s always another great house,” Stevens says. “This isn’t the only one.”