HOW does anyone buy a house in this market?
A crucial element to buying a house in this market is having a plan. Answering a few questions and doing some preliminary research will help mitigate the stress of a house purchase.
5 tips for home buying
tip 1: do your research + have a plan
Know thy market. Know thy self.
Here's what I mean by do your research and have a plan.
Utilize the Redfin app (NOT ZILLOW) to research homes in areas that you like. You can also do the reverse, which is to put in your ideal price point and neighborhoods and see what properties are generating.
Do this for three properties and share this with someone that cares or share it with yourself in an email. This will help you absorb what you are seeing and have realistic expectations about what is available for your budget.
Ask yourself the following: Why is buying this property important to me? When do I want to buy this house by? Is there anyone else buying this house with me? If yes, do we want to buy the house for the same reasons? What are the 2 main reasons we want to buy this house? Please note: if you have a partner, confirm that your assumptions are right. Do not just assume this.
The above plan should not take you longer than 15 minutes to formulate and will help make sure you are aligned with your partner as well as help you articulate to an agent what you want.
tip 2: get an agent you trust + then listen to that agent.
What should I look for in a real estate agent?
Think about your own profession and consider what qualities in the field make that person an expert. My guess is that experts in your field self-educate, have been in the job for at least 2-3 years, are good communicators, are respected by their peers and are honest.
Trust that agent.
Once you find someone that fulfills those qualities, hire that person and then listen to them. Even though everyone knows a realtor, 15% of real estate agents in Colorado do 85% of the transactions. Colorado has one of the toughest markets in the country for real estate. It's not easy to secure a property, so listen to your real estate expert. Remember: real estate agents are commissioned and they want you to get the property. Because real estate is a relationships business, agents need to be honest to secure future clients.
Tip 3: appraisal gap coverage
Appraisal Gap Coverage is a very popular practice in Colorado.
What is appraisal gap coverage? Appraisal gap coverage is a promise from the buyer to the seller that the buyer will cover the discrepancy if a house appraises low.
This is because if you are a home buyer using a conventional loan, your loan is based off the appraisal. If you are planning on putting 5% down on a $600K home and the house only appraises for $585K, your loan will be for 95% of $585K and not $600K. There is a $15K gap now that the seller and buyer have to agree on. Appraisal gap coverage states you will pay all or part of this difference.
How much is appraisal gap coverage? You can decide how much you want your appraisal gap coverage to be.
When would appraisal gap coverage matter? When the house appraises lower than what the buyer has offered to pay on the home, appraisal gap coverage becomes relevant.
What is a good amount of appraisal gap coverage? We recommend our buyers put in full appraisal gap coverage. While this is a gamble, it's a small-ish gamble. About 85% of the time, homes appraise for the contract price (the price the buyer offers), so this is only an issue 15% of the time. The 15% of the time when appraisal gap is needed, it's usually a relatively small number (up to $20K). In a worst case situation, where the appraisal gap is $50K+ (we have never seen this), the buyer could leave the contract and forfeit their earnest money without having to pay the appraisal difference.
Tip 4: cap your search well below what you want to pay
Houses are going for 5-15% above list price.
The median house price in Colorado Springs in 2022 is $425K. If we assume that most houses will go for 5-15% over the listing price, a $425K list price will likely go under contract closer to $446K-$488K.
For this reason, we recommend capping your search at $50K below the actual amount you want to spend. This will allow you to put in competitive offers without blowing through your budget.
Tip 5: move fast
The Colorado Springs' home market requires buyers to move fast. For this reason, we recommend having a plan (step 1). This will allow you to make decisions in a very short time frame, which is required to secure a property. And if you're wondering what a short time frame is, it's this: most houses post on Thursday or Friday, have contracts in by Sunday afternoon and make a decision Monday morning.
If you have questions, please reach out to myself or James. We are passionate about real estate and know that buying a house right now can be challenging, scary and frustrating. This is our full time job and we take it seriously. Please let us know if we can help.