home matters

Landing a Home when Low Inventory Drives Fierce Competition

John Pataky | July 1, 2017 4 MIN READ

As we hit the midyear mark, home inventory is down in 2017. Total housing inventory at the end of April was nine percent lower than in 2016 and has fallen year-over-year for 23 consecutive months.1 Stats like those are putting homebuyers in a crunch and making this summer a seller’s market. In this month’s Insights, we discuss how to get your home-buying ducks in a row so you are prepared to make a move when you come across a home that checks all the boxes.

Identify Your Needs vs. Wants

Determine the deal-breakers on your future home before embarking on the home-buying process. It’s easy to get wrapped up in the shiny features you wish for in your dream home, but the reality is that you might not get the full package in a low inventory market. Consider your requirements as the features that can’t be changed, such as a neighborhood with a solid school system, versus desires that you can change in the future, like granite countertops and hardwood floors. It’s easy to jump to conclusions in a tight market, but outlining your priorities will help you avoid panic throughout the process. Knowing what you are willing to compromise on and improve upon will help you make a quicker decision on what might not seem like a perfect fit at first glance.

Prepare Your Finances

It’s important to have your finances in order before embarking on the home-buying process. To prevent any hiccups during your mortgage qualification, make sure to check your credit, assess your savings and put off large purchases at least six months ahead of your search. You can check your credit through one of the main credit bureaus for free once a year. Some banks also offer free credit checks to customers. Take inventory of your savings to see how much home you can afford with your down payment. Buyers are typically expected to put down 20 percent to avoid the added monthly cost of mortgage insurance. Lastly, the credit report your lender pulls will reflect whether you applied for other loans over the past six months, so it can be helpful to avoid making any large purchases that require additional financing prior to taking out a mortgage.

Build a Team

A trustworthy real estate agent and a knowledgeable loan officer will make the home-buying process simpler, particularly in times of low inventory. Talk to others in your area who have recently completed the home-buying process to seek out industry experts. Ask questions early and often. An experienced real estate agent can explain what the home-buying process entails and spot good finds in a tight market. A skilled loan officer can help you understand the financial obligation of a mortgage, discuss your budget and walk you through all the necessary paperwork so you can line it up before the process kicks off. Lean on your team to learn what you can reasonably afford and determine the right match between available homes and mortgage programs.

Speed Up the Process

The competition is fierce in a low inventory market—as is evidenced by the drop in how long it takes for a home to sell. You can streamline the home-buying process by making sure you are preliminarily approved for a mortgage before venturing to open houses. Similar to a preapproval, a preliminary approval is not to be confused with a prequalification, which simply means your lender has informally reviewed some of your financial story. With a preliminary approval you’ll submit a mortgage application and provide documents that verify your financial profile. In turn, your lender will issue a letter that you can present to sellers to help you stand out among those browsing. If you happen to find the perfect fit, you can make an offer with your lender’s assessment that you’re preliminarily qualified to purchase.

Median Days On The Market Has Been Declining

Source: Redfin

Avoid a Bidding War

While it’s human nature to want the best deal possible, a limited selection may mean going with your maximum purchasing budget—as long as you can afford to do so. The key takeaway here is to be prepared to give a strong offer right out of the gate, as you can expect competition. That way, you stand out to the seller, while avoiding a bidding war with other potential buyers. Finding out your seller’s timeframe for moving can also be an effective way to up the power of your offer. Whether your seller is looking to move quickly or needs extra time after closing, meeting their specific need can make your offer more compelling. Some lenders offer quick to close programs so if you find yourself in this camp, be sure to touch base with your lender.

Consider Cash

Consider a cash deal to speed up the closing and strengthen your bid. By offering cash, you’ll eliminate the time required to finance a loan. This also allows sellers to negotiate pricing, closing dates and closing costs without the pressure from a lender. If you are looking for liquidity after the close, some lenders offer delayed financing products to facilitate cash deals, wherein you can purchase a house using all cash and then apply for a mortgage shortly after the closing. You can ask your lender for more details on the specific requirements and timeline for this type of mortgage.

Get Personal

Buying a home is an emotional decision and likely the largest purchase you will make. Personalize your offer with a letter to the sellers explaining why you want to make this house your home. Offer to contribute some of the seller’s closing costs like title insurance and government transfer fees. Small gestures with a personal touch can go a long way to land the home you’ve chosen in a tight market.

Ultimately a low inventory market requires more preparation upfront to ensure you can make a well-informed, yet efficient decision when you come across the right house.

John Pataky
John Pataky
EVP, EverBank Consumer Division
John Pataky
John Pataky
EVP, EverBank Consumer Division
John has long served as a leader in the financial services industry. And today, his focus on our clients' needs drives the strategic growth and evolution of our banking and home lending businesses.

All statements, comments and opinions expressed are solely those of the writer or speaker and are not the statements. comments or opinions of EverBank or of any of its affiliates, and are subject to change without notice. All factual information has been obtained from sources that the writer or speaker believed to be reliable, but the accuracy, completeness, and interpretation of the factual information is not guaranteed and has not been independently verified. Not all products are right for everyone. You should conduct your own research and/or consult your advisor before making any home financing decisions.

1. Source: National Association of Realtors,® May 2017