Category: Real Estate

If you’ve made it to this point in the process and in this series of blog posts, congratulations! You’re ready to take the next big step, putting down an offer on your future home! And here’s where it also gets really tricky, especially in the real estate market of 2021. We’ve seen home-buying competition in a way that has NEVER been seen in decades due to a short-fall in new home building, shortages in lumber and a Millennial generation that’s ready to move out of apartments and into their first homes.

So if you’re lucky enough to find a nice home within your budget and needs, congratulations. It’s time to get to work on a real offer to that home-owner and this will require some work but time is limited AND be prepared for some disappointment. Nice homes are usually getting multiple offers and yours needs to be competitive to stand a chance. And you’ll need to have your checkbook and cash ready if your offer is accepted as discussed in Step 2.

To start with, let’s take a look at comps. Using Zillow or your realtor tools, take a look at the homes in your target neighborhood over the past 3 to 6 months. Try to identify homes that are about the same square footage, same age and same condition. Pop them into your spreadsheet with those basic details and calculate the price per square foot for each similar home to your target. With this baseline number, you can estimate what your target home may be worth.

In the above example for Raleigh, I’ve got homes in my target range of $300k to $400k. And thankfully in this neighborhood, the home ages and sizes are pretty similar so the comps will be pretty accurate. You’ll have to have done this work beforehand since you’ll often have to submit an offer in short time after a house hits the market. You’ll also need to adjust based upon the specifics of your future home: Yard size, upgrades, overall condition, etc. In this spreadsheet, not only do I have the price per square foot but also documented the overbid situation. What was the home listed price and what did it actually sell for. Talk to your realtor about how hot the market is and what you may need for an over-bid situation. They will be hearing through the grapevine about what’s needed in your target neighborhoo.

Next up is the details of the offer. You’ve established a price-value of your home but there’s a LOT more to your offer than just the sale price you’re willing to pay. You’ll need to package up all the details of why you’re a qualified buyer to position your offer, against all the other offers. Your pre-approval, down-payment size (some people are buying in CASH) along with contingencies (inspection, appraisal, loan, sale of your home), due diligence and earnest monies will all be part of the offer. And you’ll also define a due diligence period (time to inspect the home, this could be waived if inspections are waived or buying as-is) along with target close date. Note that in today’s hot real estate market, some buyers are going all in with cash and waiving inspections to purchase a home. Which means the buyer is assuming nearly ALL the risk, removing all the risk for the seller. But for most people, a contingent offer is likely.

Your due diligence and earnest money will be needed if the offer is accepted and once accepted, the listing will be pulled as under contract. Due diligence money is needed for the seller to pull the listing and give you time to do your inspections and finalize your mortgage. Earnest money is ADDITIONAL money given to the seller to show your commitment to the purchase. If you back out at any point and time in North Carolina, you give up your due diligence money after going under contract. BUT you can get your earnest money back if you back out during the usual, 2 week due diligence and inspection period. Either way, the amount of money you offer to the seller as due diligence and earnest money shows how serious you are as a buyer. In today’s hot market, these amounts have increased to seriously high numbers. And that money needs to be ready to go, you’ll send the seller a bank or personal check once you’re under contract and the monies will be held in escrow.

Once you’ve finalized the offer amount, due diligence and earnest money, your realtor will figure out additional details such as the due diligence period and closing date. You may have to schedule a mortgage appraisal visit, home inspection and land surveyor along with handling some other legal research in the due diligence period. Some sellers will want to close as soon as possible (if they’ve already sold, for example). Others may want a longer close if they still have to find a home. In some cases there are even rent-backs where you officially purchase the home but rent it back to the seller for some additional time if needed.

As you can tell, the home offer is a crucial point in your new home search and when things really start to get sticky. You’ve gone from dreaming about your new home to finally making a commitment, both financially and emotionally. Ask anyone who has looked for a home in the past two years and you will hear tales of woe and happiness, the search for a new house will take you through many ups and downs. But hang in there! Because if your offer is accepted (fingers crossed), there is still a lot of work to do. In Part 7 of this series we’ll discuss the inspection, counter-offer and final closing. There’s still much to do but you’re moving forward!

If you’re a first-time home-buyer, there’s so much to learn for maybe the biggest purchase of your life. And you need to learn things stat, to make better decisions and minimize poor decisions throughout the home-buying process. Setting up your initial house budget and figuring out how much home you can afford, getting a mortgage pre-approval, financing your down-payment and estimating your purchase timeline, to choosing a realtor. All very important things to do before you even step out the door.

Now here comes the fun part, searching for and visiting homes on the market! After you sign a contract with a realtor as an exclusive agent, they will most likely set up an automated search on MLS listings to let you know what is for sale and what is coming onto the market. If they’re really good, they will keep you appraised for what’s COMING to the market. Given how hot real estate is in 2021, you have to get a head-start to succeed.

Here’s where they information you gleaned from targeting a home will come into play. Usually the search is based upon several major criteria: price range, home type (house, townhouse, condo, duplex), location by city/zip code, square footage and age. When you start your search you should have a pretty good idea of what you want in your perfect home so these guidelines will help your realtor deliver listings of interest to you.

But in my scenario, I had already been stalking homes for months before I even engaged a realtor. While your realtor will use a professional MLS listing application, I found that Zillow does a darn good job and has some nice features. You can set up a custom search just like your realtor will but on the Zillow app, you can also draw a boundary line map for where you’d like your listings to come from. This map feature is a much better way to target homes if you know what you want. I created one primary search based on fairly exact numbers of what I can afford and wanted within this mapped out zone. I then created a broader search that had larger boundaries, a bigger price range, bigger square footage range, bigger age range, just in case I was missing out on something.

Some other things to consider researching beyond MLS listings is a crime map, school map and flood plains maps. These are three necessary categories of information that may not be apparent in a house listing. Crime maps will give you an idea of why a neighborhood might be so cheap. School maps and ratings may be important if you have a child in school or getting ready for school. Flood plain maps will tell you how likely your home might be inundated if a creek or river overflows. Unfortunately with global warming, we’re seeing more and more of that happen so be warned. You can expected higher and more expensive home insurance premiums if you choose a home in or near a flood plain. I also had a map to identify future construction projects which will give you some ideas of areas that might become more attractive over the years.

In regional markets that are hot and MANY are right now, you better be ready to move quick. Try to visit in the first couple of days that a home is listed to be competitive. You’ll probably have maybe 25 minutes to check out that home and that may be ALL you get before you have to make an offer. My realtor told me that on average, home-buyers visit 12 to 15 homes and over time, your mileage may vary based upon your comfort level. Just realize that as a first-time home-buyer, you can’t expect a perfect home in today’s hot market. Given it’s one of the biggest investments in your life, I know it’s a REALLY hard decision to make that quickly.

When you visit a home, you’re going to notice a lot of different things and over time and visits, you’ll start to tune in on what’s important. Condition of the carpet, interior walls and doors are important. Think of how much life they have left and when you might have to replace them. Windows and window treatments? If you don’t like them and need to replace the, the price adds up quickly to the thousands of dollars. Lights, ceiling and mouldings, are they attractive to you (smooth or popcorn ceiling) and is the over the head look and feel acceptable? Appliances, are they in decent shape, good brands and about how old are they? Kitchen counters, cabinets, bathroom fixtures and bathroom cabinets. Is there enough space? Have they been updated? Not everything needs to be perfect but get an idea for what you can live with and the potential cost it will be for you to update things.

Landscaping? Is the lawn and yard manageable? What’s the grade like for your yard and lot? Preferably, water flows away from your home and foundation, rather than pooling up near your structure. HVAC, is it in good shape and how old is it? AC and heating units are some of the most expensive items to replace or update, take care here. And finally the siding and roof? How old are they and in what condition? Usually 25 years is to be expected for a lifespan, do your due diligence.

All these questions and answers should be ticked off as quickly as possible as you visit the home. Ask your realtor about the neighborhood vibe to make sure it fits into your lifestyle. And make sure you have access to necessary infrastructure and amenities like grocery stores, highways, and more. You may only get one quick visit to your target home so make the most out of it. Once the first offer goes in, you’ll usually have 24 hours or so with your BEST offer so get the most out of your visits

I’ve said this before but in today’s hot real estate market for a newbie buyer, it is REALLY hard. I’ve heard stories of prospective buyers bidding on 3, 5 or even more properties and not getting a home. Even if a home you’re looking at is not the one for you, it will help you tune your expectations and help prioritize what features you really need vs. want. And set your expectations on what’s in your price range and affordable.

So have fun as you look through these homes and imagine yourself living in there and being part of the neighborhood. One note, if you’re inspecting a home that still has a resident, please schedule your visit the day before vs. hours beforehand! As someone who has shown their home, it’s a LOT of work to clean and vacate it for visits so some extra time is helpful. For my next post, I’ll cover putting down an offer on a target home, here’s where things get REALLY interesting… 🙂

Key Real Estate Purchase and Sales ToDos

• Targeting a new home for purchase
• Timeline for buying a home and the down-payment
• Finding a mortgage, pre-approval and finances
• Picking an agent
• Searching for and visiting properties
• Offer – Price, closing date, due diligence, earnest money
• Due diligence, inspections and closing on your new home
• Selling your house
• Showing your home for sale
• Closing on the sale of your home

During my previous post, we did a couple of exercises around calculating how much house you can afford and what your approximate timeline to buy will be. By targeting when you want to put an offer in on a new home and close (take over ownership) on your new home, you can then calculate some other key steps and milestones. One of the key numbers in the above calculations was around the down-payment which impacts a lot of the financial aspects of the mortgage. But what we didn’t talk about specifically, was how you were going to pull together that down-payment. It’s one of the biggest steps you need to take financially, and actually, well before you start the home buying process.

For the basics, let’s just assume you need 5% to 20% down-payment for a $300k home. That means you’ll need to save $15k to $60k for a down-payment which can be a significant amount of money for many people. There are some cases for FHA loans where you can put down as little as 3.5% but in general, the days of low down-payment loans are limited after the real estate driven recession in 2008. Also in addition to the down-payment, you’ll need to cover closing costs (loan origination fees, inspection, title search, escrow for taxes and property insurance) of your new home which I’d roughly calculate as $5k to $10k for a starter home. So now you need to save $20k to $65k minimum, to start the home search in earnest.

As a first-time buyer who’s currently renting or living with family, the scenario is pretty simple. Come up with that down-payment money by hook or by crook! Cut down on the lattes or take on a side-gig to save up your money. Note that if your down-payment is a gift from a family member, oftentimes the mortgage application will ask that question since they want to know how financially disciplined you are. Also be aware that your offer-bid on a house will have an advantage as a non-contingent offer!

Now if you’re a current home-owner, it gets a lot trickier. Do you sell first or buy first? Selling first means that once you’ve accepted an offer, the pressure is on to find your new home. You’ll also likely have to find living arrangements while you’re in between houses unless you can time things perfectly. But you will have the equity/money from the sale of your house to fund the down-payment of your future home.

If you buy first and then sell your home, you’re under pressure to do two things. One, come up with the down-payment without the proceeds of selling your existing home. And two, you’ll be under pressure to sell your home quickly to minimize the amount of time you may have to carry TWO mortgages. But you will be able to make one physical move from your old home to your new home and eliminate a temporary stop and move in-between. I have known some friends who wanted a couple of months to move and were prepared to carry two mortgages for that period of time!

What you do is up to your preferences, your local real estate market and of course, your financial situation. But you should have a plan on when your house will need to go on the market, based upon your target purchase period as mentioned in the previous post.

Going back to the $20k to $65k down-payment and closing cost monies you will need, here are the options I’m aware of.

1. Have the money in a banking account as cash, whether saved or as a gift.
2. Pull the money out from an investment account like a Roth IRA or stock-trading account. The Roth IRA allows for a one time withdrawal ($10k) with no penalties for a first-time home-buyer. Could you pull money out of a 401k? Yes but it’s probably not recommended due to taxes.
3. Use the money from the proceeds of your home sale for a down-payment. This assumes sell first, buy second. And hopefully you have enough equity to cover the entire down-payment or can raid your bank account for the difference.
4. Take a short term loan from your 401k or home equity loan (HELOC) to fund the down-payment. You will be responsible for some interest while the loan is outstanding but this scenario works for a buy first, sell second process. You pay off the HELOC and interest when you sell your existing home.

Note that you will initially need some of that down-payment money in your checking account for an accepted offer as due diligence and earnest money. The rest/balance of the down-payment will be needed 4 to 8 weeks later when you close and take over ownership of your new home. Next up, we’ll talk about choosing a mortgage and getting a pre-approval. Much later on we will discuss due diligence and earnest money as part of the process around submitting an offer. As you can see, there’s a logical path and order for each step of the home buying and selling process and a LOT of dependencies between steps. So glad you’re here and learning the basics around this complicated life decision!