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Home Listings 5 Ways To Get Your Offer Accepted Now
Unless you’ve found housing under a rock, you are aware of how tough it is out there for homebuyers this summer. The Los Angeles housing market has been on a tear for over a year now, and even as the pandemic has somewhat receded, home buying has remained tough.
Two obstacles are causing this.
Obstacle #1: Home prices are at record highs. The LA median existing- home price climbed to $900,000 in July, up +18.2% from a year ago, according to InfoSparks.
Obstacle #2: Inventory remains at record lows. According to NAR, only 50 out of every 1000 homes were for sale this summer- the lowest share on record.
The Outcome: super low inventory and a lot of buyers competing for the limited and pricey supply of homes available. With that said, 30-year mortgage rates are still below 3%, so this can still be a great time to buy a home- if you have a strategic approach.
Here we will share a few tactics and tips to better prepare you for how to buy a home in Los Angeles, what to expect, and best position you to come out ahead.
In an extremely competitive market like we’re seeing, there a few things you should do to ensure you can move as quickly as possible once you find the home of your dreams. To be frank, this is how to buy a home in Los Angeles, and you are simply spinning your wheels in the California sand without having done this work prior to shopping..
Know what You Can Afford: connect with a trusted mortgage lender to help you understand what your affordability range is. This information will help your agent as they customize your criteria.
Get Pre-Approved (and possibly underwritten) before you start shopping: A pre-approval is a written statement from a lender affirming that you’ve qualified for a home loan based on a preliminary review of your credit report, income, debt, and financial accounts. Most listing agents won’t even look at your offer without providing them this documentation. Some won’t even let you tour the property without it. Have this documentation in hand before you come to the starting line.
Choose a Dream Team: In July, homes last just — days on average before sellers accepted an offer. With speed being so important, its critical to choose a loan officer/ lender who is available on nights and weekends, and who shows a quick response time to requests. In addition, choosing a real estate agent who is on it, knows the market, and knows about listings before they go live is crucial. The power of combining these two forces in your favor during home buying could quite literally be what makes your offer stand out above all others.
More than half of LA homes sold above asking price in July. The average home sold for +5% above its listing price. Some pockets of LA are further inflated than others due to strong demand; like Atwater Village, Eagle Rock, Los Feliz, and Boyle Heights coming in on the high side. The point is, you need to be prepared for this reality and have a strategy. This could also affect your affordability range, as properties in the top of your budget will most likely stretch beyond your budget as offers come in. You will need to build in room for this. And if you do choose to offer above list price, you need to have a game plan around the “appraisal gap”.
The appraisal gap is the difference between what the home is appraised for and what you offered to purchase it for. Most lenders will only make loans based on the appraisal value, and require you to pay the difference upfront. Here is a scenario: you find a great mid-century listed at $900K, fall in love with it, and make an offer above asking. Two other buyers do the same. You beat them out by offering $80k above asking. The home appraises for $890K. Your lender is now requiring you to cover the $90K difference between appraisal and your offer price. There are multiple ways to handle this, and your agent and lender can advise you on your options if this were to arise, but its best to be prepared before your offer above asking.
Real estate contracts include contingencies, which lay out conditions that must be met before a sale can be completed, and they are loopholes that allow a buyer to walk away if something goes wrong. For example, a home inspection contingency allows the buyer to request repairs from the seller if problems are uncovered during the inspection. A loan contingency requires that the buyer’s mortgage get approved before they’re obligated to buy the property.
In a strong seller’s market, buyers have less ability to require contingencies. As a result, the terms of these contingencies get tighter or the contingencies are waived altogether- in an effort to make the offer more appealing to the seller. Understand how removing contingencies and shortening contingency windows can make your offer more appealing, and also ask your agent about the implications it can have on you during escrow.
Understanding that you may have to bid on a lot of homes before your offer is accepted will only better mentally prepare you for what’s to come. Don’t let your goals be derailed by a competitive market. There are bright spots ahead. Many pockets of LA showed signs of slowing in July, as buyers are beginning to see more inventory hit the market. The number of new listings rose +8% over the last 3 months, which is also a sign of more inventory coming.
The Bottom Line: it’s still a seller’s market, and being prepared is key, but as a buyer you will begin to see more and more inventory in the coming months. Connect with The Knight Group and let us share how we can position you for success.
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