Spring is typically a busy time for buying and selling homes, but the coronavirus pandemic has pushed homeowners and shoppers into new, uncharted territory. Shelter-in-place orders and concerns about contagion have forced many real estate agents to cancel open houses, while unemployment is at a historically high level.
But even in the midst of a deadly pandemic that is devastating the economy, many Americans still want or even need to buy a home in the near future.
“I definitely have clients that are still interested in viewing homes but have been honest that they won’t put pen to paper and write an offer until they know the health crisis has passed and they can assess the impact on real estate and the economy,” says Noah Grassi, a Realtor® for Compass in San Diego.
So, what does the current state of the housing market mean for buyers? With so much uncertainty these days, buying—or planning to buy—a home during a pandemic requires extra careful consideration. That’s why we reached out to real estate agents to get their honest takes on what’s really happening in the housing market in the time of COVID-19, how buyers can prepare, and what we can likely expect when the pandemic subsides.
There may be some reductions in home prices
The federal government has provided relief through cash payments, and lenders are also offering mortgage forbearance options. But with unemployment numbers rising, more people could be forced to sell their homes or enter foreclosure, potentially leading to reductions in home prices.
“Due to millions of job losses per week, and the long-term impact of COVID, I expect housing prices to shift into a downward trend,” says Justin Brennan with Brennan Real Estate Group, Pacific Sotheby’s International Realty. “To what extent they go down will be determined by how many job losses become permanent versus temporary.”
If the price cuts materialize, that would be good news for buyers in locations where affordability was already stretched thin.
More homes will come onto the market
A bigger inventory of homes on the market may soon be on the horizon for buyers.
“There’s an inventory of sellers on the sidelines, and it is growing every day,” says Grassi. “These are owners that still reside in their property and don’t want strangers—agents and potential buyers—walking through their home at the moment due to the health crisis. Once it is clear the risk is minimal, I think we are going to see a big increase in the number of homes for sale.”
There’s a chance that buyers are also waiting in the wings for the coronavirus pandemic to end and the economy to get back on its feet. But the likely big inventory of homes for sale could put buyers in a good position.
Interest rates are likely to stay low
Over the past few months, mortgage interest rates have been lower than we’ve ever seen. And experts expect that trend to continue.
“The general consensus of the experts is that mortgage interest rates will remain attractive for many months to come,” says Grassi. “If buyers are hoping to try to find a deal on their mortgage during this health crisis, they should be writing offers now.”
If low mortgage rates and being stuck indoors have convinced you it’s time to find a new home, this may be a time to consider buying.
Keep in touch with your mortgage lender
Serious buyers should always have their mortgage lender on speed dial, but in these unprecedented times, this advice is more relevant than ever.
“Make sure you are constantly speaking with your lender on updates in the lending market,” says Brennan. “If you fall in love with a home, focus on the long term and getting a great interest rate and payment versus trying to time the market.”
Buying or selling a house this year? Then you’re probably trying to wrap your head around all the real estate jargon. No doubt you’ve heard of a buyer’s market and a seller’s market. (A buyer’s market benefits buyers, and a seller’s market benefits sellers.) But have you heard of a stratified market?
Don’t worry—this is one of those terms that, while not immediately obvious, sounds a lot more complicated than it is. In fact, a stratified market means a city or town that isn’t categorized as just a buyer’s market or seller’s market—it can show differing levels of supply and demand in different areas based on price range.
Because variables make all the difference in a stratified market, there are a few key things you should know about navigating one and making it work for you. Here’s what you need to know about buying or selling a home in a stratified market.
What is a stratified market?
Identifying a market as stratified is a helpful organization tool for real estate agents.
“Certain parts of a city can vary drastically in home values, types of homes, and whether folks are moving in or out,” says luxury real estate agent Jamie Safier of Douglas Elliman. “A good example would be when an unusually large amount of wealthy buyers begin picking up [$1 million-plus] homes, creating a seller’s market, and at the same time, more modest homes under $500,000 experience sluggish sales, which would be a buyer’s market.”
This would be considered a stratified market because both of these things are happening in the same metro area at the same time. Knowing this information isn’t just helpful for real estate agents; it can also improve your chances of getting the best deal on a home purchase or on the sale of your current one.
What you need to know as a buyer in a stratified market
Whether you’re a buyer or seller, getting the most out of a stratified market is all about understanding which segment you fall into.
“A buyer can make more efficient use of their time by understanding what neighborhoods and areas of the city will have the home types and sizes that they are interested in and can afford,” says Matt Fuller, co-founder of Jackson Fuller Real Estate. Buyers should focus on these areas, he says, to more fully understand things like pricing dynamics and available inventory.
“When deciding on offer strategy and price, make sure you’re comparing your potential home to the right type of properties in the relevant neighborhoods,” he says.
What you need to know as a seller in a stratified market
As a seller, you’ll similarly want to look at what segment of the market your home falls in, since this can help you and your real estate agent come up with the best pricing strategy.
“Make sure you’re basing your asking price on homes that are similar in location, size, condition, and finishes, and of the same property type,” says Fuller. “In my market, homes that are underpriced will be corrected by the market within a short time frame, while overpriced homes will languish before inevitably having their price cut or being withdrawn.”
Understanding the patterns and trends of your current real estate market will help you and your agent come up with an effective marketing strategy, and ultimately help you sell your home at the top of its value.
Let’s say you’ve found your dream home online on the multiple listing service, but the status of the property is marked “active contingent.” What does “contingent” mean, and is the real estate still up for grabs? Does “active” paired with “contingent” mean that the property can still be yours, if you make the right offer to a seller?
Read on for some explanation about this real estate listing status and for some insight into making an offer that will make the seller and buyer happy when a property is labeled contingent.
What does ‘active contingent’ mean?
If a home’s status is “active contingent,” it means that the buyer has submitted an offer to the seller with contingencies, or issues that must be resolved before the sale of the property can be finalized.
The most common reasons a home is labeled contingent are: the home passing an inspection, the buyer getting approved for a mortgage, and the buyer being able to sell his old home.
Once the contingency is resolved, whether it’s the buyers getting approved for a mortgage, selling their property, or the seller’s home passing inspection, the real estate sale can move forward. The status of the real estate will change from “contingent” to “pending.”
What’s the difference between active contingent and sale pending?
The biggest difference between contingent and pending listing statuses in the MLS has to do with the presence of a contingency in the sale. Some contingencies, such as a home inspection or a buyer’s approval for a mortgage, must be met. But if a house is described as “pending,” it means that no contingency exists or that all contingencies have been met, and a sale is pending. Some homes may also be listed as “short sale contingent,” in which case the buyers may be working to get approval for a mortgage, and sellers are seeking more offers.
This, of course, leads us to the big question: Should a buyer put in an offer on a property whose status is active contingent or pending? Often, your real estate agent can review the MLS and help you decide on the best move.
Putting in an offer on an active contingent listing
It’s important to not get your hopes up too high—because a contingent listing is, in fact, likely to sell. It doesn’t mean, however, that you can’t test the waters when making an offer on the property.
Brendan O’Donnell, a real estate agent with Center Coast Realty in Chicago, advises buyers to submit an offer to the seller, unless the seller’s real estate agents explicitly say they aren’t showing the property anymore.
“If a seller knows they have an attractive backup offer, they might be more willing to let that first deal fall by the wayside if something comes up during the contingency period—and go with the second buyer,” says O’Donnell.
When a property is labeled contingent, the key, he says, is to make the backup offer to the seller as attractive as possible.
“Submitting a fair price, waiving contingencies, agreeing to buy as is, and showcasing a solid, local lender go a long way in showing you are committed and are a worthy buyer,” he says.
Getting ready to sell your house? Then it’s time to roll up your sleeves and get to work! Selling a home, after all, entails a whole lot more than just planting a “For Sale” sign on your front lawn or uploading a few random photos of your place—especially if you’re angling for the most cash. (And, honestly, who isn’t?)
So before you put your house on the market, peruse this checklist of things you must do in preparation. Some of these tips are surprisingly easy, while others might require a bit more elbow grease. But they’re bound to pay off once buyers start oohing and ahhing over your place—and hopefully ponying up a great offer.
1. Find a great real estate agent
Think you can sell your home yourself, and pocket the cash you would otherwise pay a real estate agent?
It can be tempting, especially in a hot market, but resist the urge, says Jon Sterling, a real estate consultant with Keller Williams Realty in San Francisco. He’s found that a “for sale by owner” transaction is almost always a disaster, leading you to sacrifice both money and time.
That said, don’t just blindly hire the real estate agent who most recently sent you a flyer or the one your uncle’s friend’s co-worker’s cousin used. Do some research to find a real estate agent who is knowledgeable about your specific market, and then interview her to make sure she’s a good fit.
Your real estate agent should be someone you feel comfortable working with, whom you trust to sell your house for top dollar. Don’t be afraid to talk to a few real estate agents before picking one.
2. Consider your curb appeal
Yes, for better or worse, buyers do tend to judge a book by its cover. You want to make sure potential buyers’ first impression of your home is a good one—and inspires them to stop by the open house or schedule a tour—so they can see more.
By investing some effort in relatively easy fixes, like planting colorful flowers and repainting your front door, the outside of your house can beckon prospective buyers to come on in.
If you’re not sure how to improve your home’s curb appeal, ask your real estate agent for advice on how others in your area have improved the exterior before selling their houses.
3. Declutter living areas
Less is definitely more when it comes to getting your house ready to show, notes Boris Sharapan Fabrikant, a real estate broker with Triplemint.
Do a clean sweep of counters, windowsills, tables, and all other visible areas, and then tackle behind closed doors: closets, drawers, and cupboards—since virtually nothing is off-limits for curious buyers.
If the house is overflowing with stuff, buyers might worry that the house won’t have ample space for their own belongings. They won’t sign up to pay a mortgage if they think they’ll also have to rent a storage space.
Take your excess stuff and donate it, or pack it up to be stored off-site. Not only will clearing clutter help your house look more appealing to buyers, it will also help you once you’ve accepted an offer and it’s time to move into a new home. Moving out will be easier if some of your stuff is already be packed.
4. Depersonalize your space
The next step on your declutter list? Sellers should remove any distractions so the buyers can visualize themselves and their family living in the property, says Kipton Cronkite, a real estate agent with Douglas Elliman in New York.
He says sellers should remove personal items and family photos, as well as bold artwork and furniture that might make the home less appealing to the general public. The goal is to create a blank canvas on which buyers can project their own visions of living there, and loving it.
5. Repaint walls to neutral tones
You might love that orange accent wall, but if it’s your potential buyer’s least favorite color, that could be a turnoff, warns Sharapan Fabrikant.
“You’re pretty safe with a neutral color because it’s rare that someone hates it, but the other benefit is that a light color allows [buyers] to envision what the walls would look like with the color of their choice,” he points out.
It’s the seller’s job to help buyers picture themselves in the house. If they don’t feel at home, they’ll probably look at other real estate options.
6. Touch up any scuff marks
Even if you’re not doing a full-on repainting project, pay special attention to scrubbing and then touching up baseboards, walls, and doors to make the house sparkle and look cared-for.
Selling almost any home can be tricky, but selling a home with lots of little problems and small repair needs can be downright difficult. When buyers walk into an open house, or go on a home tour, they want to fall in love with the house, not add a bunch of small repairs to their to-do list.
In order to impress buyers (and sell your house quickly), fix up your house before putting it on the market.
With a home that is fixed up and move-in ready, you will probably see more interest, and may even see multiple offers.
7. Fix any loose handles
It’s a small thing, sure, but you’d be surprised by the negative effect a loose handle or missing lightbulb can have on a buyer, notes Sharapan Fabrikant.
“It can make them stop and think ‘What else is broken here?’” he explains.
For a buyer, submitting an offer, and later committing to a mortgage, is a big deal. When you’re selling your home, you don’t want to give any buyers doubt that your house will make a great home.
8. Add some plants
When staging your house, remember that green is good: Plants create a bright and more welcoming environment. You might also want to consider a bouquet of flowers or bowl of fruit on the kitchen counter or dining table.
Some plants and natural elements will impress buyers by bringing some extra color and life to your decor.
9. Conduct a smell test
Foul odors, even slight ones, can be a deal breaker, and the problem is that you might not even notice them, says Sharapan Fabrikant.
He recommends inviting an unbiased third party in to try to detect any pet smells or lingering odors from your kitchen.
If the smells are pervasive, prepare to do some deep cleaning as many buyers are on to seller’s “masking techniques” such as candles or plug-in room deodorizers. Plus, covering up odors with a stronger scent might backfire if the buyer doesn’t like the smell of lavender or artificial citrus.
10. Clean, clean, clean
Once you’re done cleaning your house, clean some more. Even if you’re not worried about what buyers will think of your home’s scent, you want your property to look spotless.
Think of it this way: You’ll probably have professional photos taken of your house when it looks its best. Naturally, you’ll want your house to always look like it does in those pictures.
When selling your home, it’s important to keep everything tidy for buyers, and you never know when a buyer is going to want to schedule a last-minute tour. Remember to take special care with the bathroom, making sure the tile, counters, shower, and floors shine.
11. Hide valuables
From art to jewelry, keep your treasures are out of sight, either locked up or stored off-site, recommends Kronkite.
You can’t trust everyone who comes into your house, even when you’re trying to sell it. Sometimes things disappear during an open house, and there’s little the seller can do to get those things back. Take care to hide your valuables or move them to a safe space away from your home.
Home stagers will evaluate the current condition and belongings in your house and determine what elements might raise the bar. They might recommend you buy or rent some items, or they might just reorganize your knickknacks and bookshelves in a whole new (that is, better) way.
Stagers know the real estate market, and what sells, so it’s important to take their advice and not take offense when they make big changes. Their job is to help drum up interest from potential buyers, which is always good news to the seller.
Home sellers are often told to make upgrades to their house before they sell … but when is the best time to get those home improvements underway, in terms of scoring the best ROI?
It’s a tough balance to strike. After all, the sooner you remodel your kitchen or retile the bathroom, the more you’ll get to enjoy it all yourself. But if you make those improvements too long before you sell, you risk them looking run-down and outdated by the time you want to market your home. So, when’s the right time to give the green light?
If you’re agonizing over such questions, we can end your misery now—in a good way! Here’s how far in advance of listing your home you should do certain home improvements, so they’ll still look fresh enough to fetch top dollar.
7 to 10 years out
Well, you’re quite a planner, aren’t you? That’s cool … we’ll play the long game with you. Here are upgrades you can safely undertake when you still have significant time until your sale.
1. Redo your landscaping
This is truly one of the few housing projects that gets better with age, since shrubs and trees only improve as they mature. And, bonus: It’s likely that it will never look dated, says Lisa Shiroff of Leafy Green Landscaping in Buena, NJ. However, she cautions, think twice about unique or difficult-to-maintain items if you are concerned with resale value—we’re talking elements like a meditation nook, bocce ball court, or koi pond.
“Most people are not willing to invest the time, energy, or finances to maintain those areas, so keep your additions relatively mainstream and user-friendly,” Shiroff says.
“Curb appeal is key when you’re getting ready to sell your home, and garage doors can dramatically improve the look of your home,” says Matt Edstrom of GoodLife Home Loans in Laguna Hills, CA. Since garage doors can last for up to 40 years, this is an update you can enjoy right now, without worrying about taking a depreciation hit.
3. Replace your roof
If your roof is more than 20 years old and you plan on selling, you may want to replace it, suggests Taylor Willson, owner of Willson Home Inspection Inc. in Tampa, FL. For one thing, you may receive immediate savings from your insurance company, he says, and beyond that, “A newer roof is a great selling point.” Choose a hardy material, like concrete tiles or asphalt shingles, that have a long useful life.
Watch: Want Your Home to Sell for Over Asking? Do This
4. Keep up on repairs
Repairs should have a permanent spot on your “to do” list. If it’s broke, then, yes, please fix it.
“Don’t put off repairs while you wait for the optimum time,” says Cristina Miguélez, remodeling specialist at Fixr.com. “They help your home retain value and can keep a small problem from becoming exponentially bigger.”
5 years out
This is a good time to start thinking about big-ticket items that will affect your resale and that you won’t want to pay for all at once. Here are some to consider.
1. Replace major systems
We’re talking HVAC systems, plumbing … anything whose average life expectancy is relatively long, and where you want your listing to showcase that these key systems are less than five years old. Replacing them now allows you to enjoy the improved operation and potential energy savings, while avoiding a concession in the sale price when the time comes, Willson says.
2. Check on anything with a warranty
This is also a good time to do a check on any items that have a current warranty—such as windows and appliances—while they are still covered, suggests Frances Dawson, with Re/Max Executive at the Lake in Cornelius, NC.
3. Switch out your front door
Another important element of “curb appeal,” your front door can really make your house pop, says Edstrom, as well as potentially increase your energy efficiency. Front doors can last for decades, but they are also exposed to the elements, so this is a good time frame to allow you to enjoy the aesthetics and energy savings, without running the risk that it will look too weathered come sales time.
2 years out
Two years is nothing in a home’s history, so it’s time to really start getting serious. Here’s what to do to start prepping for a relatively imminent sale.
1. Reno the kitchen or bathroom
This can be subjective, but you’re probably safe doing an overhaul in this time frame if you are hoping to get some personal enjoyment out of your updates. Miguélez suggests, however, that you pick your decor carefully to avoid being stuck with an upgrade that’s already dated.
“A ‘trend’ is something that’s predicted to last roughly 10 years, so your safest best is to find a look that’s been on the upswing for roughly two to three years,” Miguélez explains. “That means it will look relevant for a while, rather than something that is already five years old and potentially nearing its expiration date.”
“If you don’t have extensive prior experience, hiring a professional is going to be cheaper in the long run, because the DIY look is unappealing to your potential buyer.”
2. Get to organizing
This is also a good time to start cleaning out storage areas, closets, cabinets, the garage, the attic—anyplace you have an accumulation of stuff, Dawson says. Your future self will thank you for getting this time-consuming project out of the way now.
3. Have a home inspection
Very few sellers do this, but it’s smart to have your home professionally inspected right about now, so you won’t run into any nasty surprises when selling time rolls around.
“It is always less expensive to repair items before you get into negotiations with a buyer,” Dawson points out.
1 year or less
It’s crunch time, and now is the time to attend to all the high-traffic areas, as well as make improvements that will freshen up your listing.
1. Redo flooring
Pets and kids can scratch up your floors quickly, so wait as long as you can before refinishing floors. Replace carpet, too, if it’s dingy, and especially if it has pet odors.
2. Roll on a fresh coat of paint
Walls get dinged up constantly, so painting right before putting your house on the market can really make it sparkle. It’s also a quick job that you can get done in a week or two.
3. Replace all your accessory items
These are things like bedding, throw pillows, chair cushions, patio furniture, shower curtains, plumbing fixtures, cabinet pulls—all the embellishments that provide the “lipstick” for the foundational elements. Shop those sales and switch out everything you can, Dawson recommends.
“You want the house to shine like a new penny, not appear to be well-loved,” she says.
Homeowners who plan on moving at some point in the future are likely to ask the question: “What will my home be worth?” Ah, if only there was a real estate magic eight ball that could reveal the price tag sellers should slap on their homes! Location and real estate market conditions help determine your home’s value, but unfortunately, pinpointing an exact number is far from a perfect science.
But there are certain tried and true tactics you can employ to help you get a ballpark figure for your home’s worth. Below, our real estate experts offer their most reliable methods.
‘What will my home be worth?’
Projecting out what your home will be worth in just a couple of years can be challenging, but in a conservative market, 3% appreciation per year is a good guideline to use, says Liane Jamason, broker associate at Smith & Associates Real Estate, in Tampa Bay, FL.
So, using that number, you can estimate that a $200,000 home you bought today could be worth $268,783 in 10 years. Of course, keep in mind that exceptions abound. In some markets, you can see jumps in value of 15% to 20% over short periods of time.
Look back to look forward
Another way to estimate your home’s value is by taking a backward, historical look, says Bruce Ailion, a real estate agent and attorney for Re/Max Town and Country in Atlanta.
The Federal Housing Finance Agency’s Housing Price Index Calculator, for example, will show you market trends from the past that you can use to help you plan for the future. For example, the calculator shows that a home purchased 20 years ago for $100,000 in Portland, OR, would be worth $252,335 today, meaning that it had increased 4.74% annually, for a total of 153.34%. Taking that same percentage and pushing it out 20 years, you could guess that your home might be worth $636,640 in 20 years.
Jason Walgrave with Re/Max Advantage Plus in Minneapolis/St. Paul, MN, likes to look at the even longer term. “The Twin Cities housing market has appreciated an average of 4.2% per year over the last 40 years, so under that model, a $250,000 house today may be valued at $300,000 in five years, $350,000 in 10 years, and $450,000 in 20 years.”
Keep in mind however, that these scenarios don’t take into account the specific circumstances of a neighborhood, the home’s condition, or city revitalizations that would drive up the cost of housing.
The most accurate way to answer the question “What will my home be worth?” is to work with your real estate agent. This can help you get a handle on the comps—or comparable properties—in your neighborhood that will help give you an accurate read on how much your home could sell for. If you looked at nine homes in a given subdivision that sold for $100,000 in 2006 and were selling in the $140,000 range in 2016, you could say that real estate in that area was appreciating by 40% every 10 years.
The bottom line is that the longer you stay in a home, the more time you have to reap the benefits of real estate appreciation.
Any real estate expert will tell you that if you are planning to move, it’s wise to keep yourself in the know about your property’s value. That way, you won’t be surprised when the time comes to put your home on the market.
Yeehaw, the latest home-buying season is now in full swing! And if you’re hoping to buy a house soon, listen up: The real estate market changes on a dime, so if you want to succeed in today’s environment, you’ll want to take its temperature and act accordingly.
And buyers are in luck: By and large, this year’s home-buying season is a far better bet for buyers than in the past. So if you’re craving some intel on what to expect—and how to use this to your advantage—here’s the info you need to confidently buy a house right now.
The strong seller’s market is on the wane
In the recent past, you weren’t altogether wrong if it seemed like buyers were offering their firstborn child in order for their offer to get a fair look—and often for houses that you would have snubbed in less-sizzling markets. But now it’s OK to breathe—and even sleep on it.
As inventory begins to rise, the strong seller’s market that characterized last season’s home-buying season is fading fast. In fact, many say we’re back into what can be considered more of a buyer’s market, where the seller doesn’t hold all the cards, says Brad Cox, a real estate agent at the Vesta Group of Long & Foster Real Estate, in Lutherville, MD. That means you’re going to have some wiggle room to negotiate.
“While you still want to prepare a competitive offer, your time window is likely to expand—meaning you can think it over before rushing in with an offer,” Cox says. “And you aren’t going to have to include some of the riskier elements, such as waiving financing or inspection contingencies, that were a hallmark of past years.”
But what you face still varies by the Big L
You’ve heard the adage “location, location, location,” but it will definitely be a huge factor in 2019’s home-buying season, Cox says. Because while bidding wars are out in most markets, real estate is still very neighborhood-driven.
“While you might see a softening market in some areas, others may still be in a strong seller’s market,” he explains.
He says the key metric to look for is “days on market,” which means how long a property has been waiting to sell. If you’re hoping to buy in an area where days on market are staying low, you’ll have to be prepared to act a little faster. But in areas where this number has started creeping up, you might be able to look around a little more.
For an accurate pricing picture, look only at the latest comps
Both buyers and sellers rely on comparables, aka comps, when determining a fair price. But that can get tricky as the market starts to turn, because sellers might be remembering a months-ago heyday and pricing accordingly.
“Buyers should only consider the most recent comps, which means the last three months, because that is the most accurate reflection of where the market is,” says agent Jed Lewin of Triplemint in New York City.
But don’t forget that it’s still very easy to insult a seller
Yes, the house might have been on the market a few more days than it would have been last year and the comps might be sliding, but that doesn’t mean you can expect that anything goes when you’re buying a home in 2019.
“I am seeing far more buyers starting to make very aggressive lowball offers in an attempt to test sellers’ appetites, even if they’re totally serious about a given property,” says Lucas Callejas, an agent at Triplemint. But in places where the market is still warm, that can turn sellers off—and turn their attention to the next offer that comes along instead of yours.
You may be able to get a better interest rate than you think
One of the big stories of 2018 was rising mortgage interest rates—but while they ticked up precipitously by the end of last year, they’ve fallen a bit again, so you could be in a good spot, says Beatrice de Jong, director of residential sales at Open Listings, in Los Angeles.
Bottom line: Now is the time to lock in a great rate, since today’s appealing numbers might not last long.
“Interest rates are predicted to rise in 2019 and 2020, so buyers would be wise to shop for and lock in their interest rate as soon as possible,” de Jong says.
Increasing rates can make a huge difference, she points out, noting that the difference between a 5% interest rate and 5.5% interest rate is $93 a month on a $300,000 mortgage loan, which can easily derail a buyer’s budget.
So even if you are trying to improve your credit or save a few more bucks for the down payment, you might be better off just wading in and locking in the rate, says Jason Lerner, vice president and area development manager for George Mason Mortgage, in Lutherville, MD.
“You might work for three months to burnish your credit, and then find that the rate has risen so much that it doesn’t make a difference,” he adds.
Your credit score might be better than you thought
Two recent developments in credit scoring may help would-be buyers: One is the new UltraFICO, which takes into account how you manage your checking, savings, and money market accounts, in addition to your credit cards and consumer loans. And the second is Experian Boost, which adds your utility and cellphone bills into the mix.
But even if you have a stellar record in all those areas, there’s no guarantee these will be your golden ticket, cautions Lerner. That’s because it’s still early days for these initiatives: UltraFICO is currently available only in a pilot phase in certain areas, and Experian has yet to launch the booster product, although it is taking sign-ups. But as these products become more widely available throughout the year, home buyers may reap the benefits.
“A difference in 10 or 20 points to your credit score can make a difference between approval or denial—and can lower your rate, which can save thousands over the life of a mortgage,” Lerner points out. He also predicts that requirements will loosen a bit in 2019: “You might not think your credit is good enough for a mortgage, but it’s worth talking to a lender to see if there is a program out there that can help.”
What is the difference between a foreclosure and a short sale? Foreclosures and short sales are both options for homeowners who fall behind on mortgage payments, but it’s important to understand the difference between these two processes.
So if you’re struggling to pay your mortgage and aren’t sure what to do, allow this primer on foreclosures vs. short sales to set you straight. Here’s what these things are, their pros and cons, plus how to tell whether a short sale or foreclosure is the better option for you.
What is a short sale?
A short sale happens when a homeowner owes more on the mortgage balance than the market value or sale price of the property at the point the owner wants to sell. For a short sale, the homeowner is essentially asking the mortgage lender (typically a bank) to accept a lesser amount than the total mortgage owed. For example, if the homeowner sells the house for $250,000, but the remaining mortgage loan balance is $300,000, the seller is essentially $50,000 “short” on paying the lender back. That’s a short sale.
If the lender accepts the short sale terms, the loan debt will be settled and the borrower released from any further liability once the short sale has closed, says Paola Martinsen with Equity Real Estate in Murray, UT.
Like other homes for sale, a short sale property will be listed by a real estate agent (typically one who specializes in short sales).
For the seller, one thing you’ll want to watch out for is a deficiency judgment. A deficiency judgment is where, after a short sale ends, the mortgage holder seeks to recover the “deficiency” (the money it lost in this home sale) through a court order placing a lien on the debtor for further money (so in this case, a mortgage lender acts as a lien holder). Some states outlaw this practice, but you should ask, just so you aren’t blindsided by it later.
What is a foreclosure?
Foreclosure is a legal process that happens when a homeowner (although “borrower” might be a more appropriate term from the perspective of the lender) is unable to make mortgage loan payments for a significant period of time.
After three to six months of missed mortgage payments, a lender will issue a Notice of Default with the County Recorder’s Office. This notice is to let the borrower know he is at risk of foreclosure—and when they foreclose, the current owner will be evicted.
After receiving the Notice of Default, borrowers can try to settle their loan debt with their lender either through a short sale or by paying the mortgage balance they owe. This period is called pre-foreclosure and can last anywhere from 30 to 120 days after receiving the Notice of Default.
If the debt is not recouped, lenders will step in and foreclose on the property. To foreclose, they’ll schedule a foreclosure auction to sell the house to a third party. Foreclosure auctions will be advertised in local newspapers and are typically held at either the property or the local courthouse, says Cathy Baumbusch,a real estate agent with Re/Max Allegiance in Alexandria, VA.
If no one buys the home at auction, the lender becomes the owner and it’s considered a bank-owned or REO (real estate–owned) property.
Another option to avoid foreclosure is to do a deed in lieu of foreclosure. A deed in lieu of foreclosure is a transaction where a homeowner transfers title or ownership of the property to the lender in exchange for being released from their loan debt-free and clear.
Watch: Don’t Fall for These Down Payment Myths
What is the difference between a short sale and foreclosure?
Short sale and foreclosure are similar in that they’re both financial options for individuals who own homes but find themselves in financial distress. Both also have a negative impact for your tax return, credit score and credit report, and future prospects getting a loan.
But short sales and foreclosures differ greatly in process. A short sale transaction occurs when mortgage lenders allow the borrower to sell the house for less than the amount owed on the mortgage. The foreclosure process occurs when lenders repossess the house, often against an owner’s will.
Timing also differs: Short sales can take up to one year to close, while foreclosures generally move along much faster because lenders are intent on recovering the money they’re owed.
Furthermore, a short sale is far less damaging to your credit score than foreclosure. In fact, people who go through the short sale process can usually buy another house without having to wait, although securing a second mortgage might be more challenging. Foreclosure, on the other hand, will stay on your credit report for seven years. You’ll also have to wait five years to buy another house.
If paying your mortgage has become a real challenge, the smartest step to take is to talk to your lender to discuss your options. Chances are, your lender will be able to offer the best plan of action based on your unique situation and the laws in your state.
How short sales and foreclosures work for buyers
Short sales can be a good deal for bargain house hunters, but buying a short sale can be a headache.
“I wouldn’t recommend purchasing a short sale for first-time buyers, who may get frustrated with the extra paperwork and long waits,” says Marlene Waterhouse, owner of Short Sale Solutions.
The average short sale takes around 90 to 120 days, and sometimes even longer. Why? Mortgage lenders often won’t approve the sale without buyers agreeing to its demands like paying for many additional fees such as repairs, wire transfers, and closing costs. These are all costs the seller would typically be on the hook for, but in a short sale, the bank is stuck with the bill. Therefore, to reduce its costs, the bank may try to negotiate these costs with the buyer.
Other than the involvement of the bank, a short sale will proceed much like other sales. Buyers can get a mortgage and have the opportunity to seek an inspection.
Foreclosure sales, however, are different. For one, foreclosure properties can be purchased only with cash; no traditional loan will be granted for a foreclosure.
While a foreclosure can be a great deal for home buyers (particularly foreclosures that have been taken over by the Federal National Mortgage Association, better known as Fannie Mae), they also come with some risk, says Baumbusch.
“Keep in mind that a foreclosed home sold at the courthouse is bought without warranty and sight unseen,” she adds.
That means you will not be able to have a foreclosed home inspected for structural problems, mold, infestations, or other issues with the house. You will also assume all liens that might be tied to the property.
There are few things more stressful than buying a home. That’s probably why nearly everyone who’s been through the home-buying process is happy to give you some advice.
It’s a nice gesture, really. It’s just not always helpful.
The problem is that when you’re talking about something as fluid as the housing market, the rules change quickly. As such, there’s a good chance that any advice you get—no matter how great it was at one point in time—is now outdated.
So now that 2019 is well underway, it’s high time to point out some home-buying advice that once worked well but has passed its expiration date. Of course, it varies by market, so check with your real estate agent to be sure, but by and large, you should take these once-wise words below with a huge grain of salt.
Wait for spring
There’s no doubt you’ve heard this piece of advice before. “Who wants to move when the temps are low and when there are so few homes on the market?” Despite what you’ve been told, though, Sebastian “Seb” Frey, a licensed real estate broker in the Silicon Valley area, says this advice is actually pretty outdated. There’s no need to wait!
“Yes, there’s more inventory [in the spring] but there’s more competition for it, and sellers are more optimistic about getting a higher price then and so less willing to negotiate,” he says. “Buy when you find the right property that will meet your needs for today—and the next five to 10 years.”
When it comes to your dream home, don’t let a small factor like the weather make decisions for you.
Wait for home prices to settle down a bit
Likewise, if you live in an area that’s been more of a seller’s market over the past few years, you may have been told to wait until the market (and those sky-high prices) settle down a bit before really beginning your search. But Frey says that’s now bad advice. The reason? Rents are also high.
“Paying high rent now and hoping that you’ll find a better deal two or three years down the road [won’t work],” he says. Instead, he says, “The better advice is to make a smart buy today for a property that will appreciate over the long term.”
Entering a volatile home-buying market may sound scary, but it’s important to look at the long-term repercussions of waiting.
Focus mainly on the type of house you want
Traditionally, you figured out what kind of house you needed (How many bedrooms and bathrooms? What size garage?), and then went looking for it. The house itself was the main attraction, and the neighborhood was just an extra factor you considered down the line.
But Daniel Martinez, a real estate agent in Houston, says that in 2019, that method is completely backward. Instead, you should find your future neighborhood first, and then see what houses it has to offer.
“The way cities and communities are evolving cannot be ignored, and we see this shift reflected in home buying,” he says. “My advice to buyers is to go beyond measurements. Before looking at homes, take tours of neighborhoods and narrow down areas that are the best fit for you and your needs. Then find homes that you can afford within those pockets. Ultimately, the property doesn’t make someone happy, it’s the life and the community the area holds that makes and creates the happiness you’re looking for.”
New construction is always the best choice
In the past, buyers have been told that if they have specific wants or needs, new construction was the way to go. It makes sense—if you’re hand-picking every finish and knob, it probably will end up being exactly the house you had in mind.
However, New York real estate agent Fiona Dogan, with Julia B. Fee Sotheby’s, says that as we move forward in 2019, new construction may no longer be your best bet.
“New construction is slowing nationwide, so while home buyers last year may have turned to building in order to obtain their dream home, 2019 is the year of the renovation!” she says.
“Now, you should identify homes that—with a little bit of work—will meet your needs. You can find a great house, invest just a small amount of time and money, and end up with a place that’s just right for you and your family. The right real estate agent will help you identify properties and help you envision what’s possible.”
Make an offer with room to negotiate
Once upon a time, it was a smart move to make an offer on a house that was just a bit under the price of what you were actually willing to pay. That way, you had room to negotiate when the seller came back with a higher offer. But real estate professionals say that’s not the way you should be thinking anymore.
“The housing market in 2019 will be slightly different from what we experienced in 2018 when it comes to pricing and negotiations,” says Howard Margolis, an associate real estate broker with Douglas Elliman, in New York. “In regards to negotiations, what was once the premise of offering 10%-15% below asking is not necessarily the case anymore, and it’s a strategy I would not recommend. In today’s market, a truly motivated seller is less inclined to engage in the back-and-forth of a real estate transaction, and listings are priced closer to the final sale price.”
A better bet is to base your offer on comps—aka similar property sales in the area. Home sellers know what their house is worth and aren’t likely to bend to a lowball offer.
Whatever offer you make, do it fast!
The housing market in recent years has been a nightmare for buyers in many areas—but times are changing.
“For the most part, 2018 was a seller’s market, meaning there were tons of buyers and not a ton of homes for sale. This resulted in a lot of multiple-offer situations,” says Mark Cianciulli, real estate agent and co-founder of The CREM Group in California. “During this very competitive time, many real estate agents were advising their clients to write offers as soon and as high as possible—sometimes without even seeing the home.”
But this reality is waning—and that’s good news for buyers. Cianciulli explained that toward the end of 2018, buyer exhaustion started to set in—meaning buyers got sick of bidding high and still losing. This meant those high-priced houses went untouched, and prices are finally starting to fall.
“In 2019, I would advise buyers to take their time, appropriately assess the home and its price, and write an offer based on what you and your agent believe it’s worth,” he adds.
Of course, if you find a house you love, it’s still not advisable to dawdle—but you don’t have to move at lightning speed this year, either.
The American Dream is house with a white picket fence
If you’re ready to settle down into a home—especially if you have a family—you know exactly what you’re supposed to be looking for, according to popular standards. At least three bedrooms in the middle of a nice neighborhood, with large closets, a good-sized yard, and a white picket fence. It’s the American Dream—at least, that’s what you’ve always been told.
Except, according to Heather Schuck, a real estate agent in Austin, TX, and founder of TheShiftAgency, that’s not always possible in today’s market.
“With low inventory and a competitive market, you have to get creative,” she explains. “Owning a home can take many forms, whether that’s splitting the purchase of a duplex with another couple, buying a town home near campus that can be rented out down the road, or perhaps a fixer-upper. A first home doesn’t have to have a picket fence, it just needs to be a good financial decision.”
Credit freezes are a hot topic these days. With security breaches cropping up at banks, retailers, and even credit reporting agencies (hello, Equifax), many Americans fear that hackers might access their personal data and open new credit lines in their name.
That’s where a credit freeze can help. This tool restricts access to your credit report, and since new credit can’t be issued without a credit check, this effectively thwarts thieves’ attempts to use your identity for nefarious purchases.
While freezing your credit is a good idea if you’re a victim of a data breach or are otherwise worried your credit accounts have been compromised, this poses a problem if you need a mortgage to buy a home, or want to refinance a home loan you already have. The reason: A credit freeze also means that your credit isn’t available for legitimate inquiries, like lenders pulling your credit to assess whether they want to work with you.
But you’re in luck: A new federal law has been passed to make shopping for a home with a credit freeze easier than ever. Here’s how you can protect yourself and move forward with financing (or refinancing).
How to freeze your credit
In September 2018, in the wake of the massive Equifax data breach, the Economic Growth, Regulatory Relief, and Consumer Protection Act was passed, requiring that all three major credit bureaus—Equifax, Experian, and TransUnion—grant consumers the ability to freeze and unfreeze their credit reports for free. That’s a big deal, because before this point, some states charged up to $10 per request to freeze or unfreeze credit—to the tune of $30 total if you were covering your bases with all three bureaus.
This new law also requires each bureau to speed up their response; requests made online or over the phone must be handled within one business day (three days for snail mail).
All you have to do is contact all three of the major credit bureaus (Equifax, Experian, and TransUnion). Create an account, then request the freeze. Make sure to safeguard your PIN and password, as you’ll need them to lift the freeze when shopping for a mortgage later.
How quickly can you unfreeze your credit?
If you need to unfreeze your credit quickly because you need your credit pulled for the mortgage application process, here’s some more good news: This new law also requires that credit bureaus must respond within one hour if you contact them online or by phone to unfreeze your credit. In other words, it’s safe to freeze it, knowing you’ll be able to quickly unfreeze it later if need be.
But it’s up to you to contact the bureau to instigate the thaw. Sometimes clients are unaware that they must unfreeze their credit themselves before seeking mortgage pre-approval. They mistakenly assume that because they have authorized the credit pull, it will work, says Elaine Poff, a licensed loan officer assistant at Fifth Third Mortgage in Cuyahoga Falls, OH.
“Until the unfreezing process has taken place, these potential borrowers cannot get pre-approved for a home. That can slow down the house-hunting process, because your offer isn’t likely to be entertained without a pre-approval,” Poff says. “A delay can lead to unfortunate consequences in the current climate where there are often multiple offers, and time is of the essence.”
That’s why it’s important to unfreeze your credit before starting the paperwork for mortgage pre-approval.
How to unfreeze your credit
The good news is that it’s simple to unfreeze credit. Mike Arman, a former mortgage broker in Oak Hill, FL, recently underwent the process to unfreeze his own credit for a weeklong window during which he refinanced his home loan. Here is how he describes the process:
Tell your lenders that your credit is frozen, and ask them which bureau they use. (Many use only one, although some use all three, so find out in advance.)
Call the credit bureaus used, with your PIN and password handy, to access your account.
Request that your credit be unfrozen, wait an hour, and it should be done! (Or else call to confirm.)
“Yes, it is a bit of a nuisance, but it is a lot less of a nuisance than having your identity stolen, and your bank account drained and credit ruined,” Arman notes.
Typically, you’ll only need to thaw it for a week or two, and as soon as the lender advises that your credit has been pulled, you can call the bureaus back and repeat the process to freeze it again.
Just be aware that often lenders will pull credit twice—once when they initially take your application to determine if they want to proceed at all, and again just before closing to make sure you haven’t incurred any debts that would compromise your financial standing. If that’s the case, just find out from the lender when the process will be repeated, and make sure that your credit is thawed to meet that timeline so that you don’t delay your closing.
While this does add an extra step to the mortgage-seeking process, don’t let it deter you from freezing your credit for your safety, because it is easy enough to thaw it when the time is right.