Smart Moves

A drug company marketing manager and his homemaker wife, both in their early 30s, must move from Boston to a town near Chicago to take a job transfer. Knowing that available homes are scarce in their area of choice, they were extremely apprehensive when starting their property chase last April.

“They lost out on six offers before finally succeeding on a nice brick colonial in the village of Arlington Heights, northwest of Chicago. This process was extremely nerve-racking, but they hung in there until they succeeded,” says Rich Harty, the real estate agent who represented the pair.

Like many purchasers in the current market, the Boston couple was terrified they’d fail to find a fairly priced property within their time frame, made all the more urgent because they’re expecting their first child in a month.

There are multiple reasons why buyers are apprehensive nowadays. The biggest factor involves the paucity of property in popular areas, which has led to renewed bidding wars. Another is that buyers in competitive situations often feel compelled to waive their right to a home inspection, which leads to the fear of hidden defects.

To compete, many purchasers are now bidding above the sellers’ asking price, which can lead to fears of what agents call the “appraisal gap.”

“This gap occurs when the appraiser for the buyers’ mortgage lender says the home is worth less than what was offered. Then the buyers usually must make up the difference with their own cash,” says Harty, a former president of the National Association of Exclusive Buyer Agents (naeba.org).

Unlike the Boston couple who didn’t let their homebuying fears stop them, many worried buyers are waiting on the sidelines until inventories loosen and mortgage rates come down. But Harty often dissuades his clients from a postponement.

“Assuming you expect to stay in the house long term --ideally 10 years or longer -- you’ll have time to build equity and refinance when the time is right,” he says.

Here are a few pointers for buyers:

-- Keep in mind your reasons for wanting to move.

Fear is a powerful factor that can stop people from realizing their homebuying plans, even when logic tells them to go forward, says Sid Davis, a real estate broker and author of “A Survival Guide for Buying a Home.”

Granted, there are legitimate reasons to delay homeownership. Perhaps you have evidence your employer will soon begin a round of layoffs or that your spouse’s job is vulnerable.

But absent such realistic concerns -- and assuming you’re sure that buying the right home is a good move for you from a financial and personal perspective -- there’s no point in ruminating over what could go wrong.

-- Line up mortgage approvals at the front end.

The time you spend documenting your financial fitness in order to buy a home is well spent if the lender gives you a preapproval letter, a vitally important tool as you negotiate for a property.

“Another advantage of preapproval is that it helps you define your comfort zone on how big a mortgage you can afford,” Davis says.

As always, most lenders still go to great lengths to ensure that the loans they originate are solid. That means borrowers must be well prepared to respond to their lender’s request for documents.

“The lender should tell you precisely what documents you’ll need for mortgage approval,” Davis says.

As proof of income, many lenders now insist on more than the customary pay stubs and W-2s. For example, they’ll likely ask for at least two years’ worth of tax returns. Also, they’ll probably want proof that the funds for your down payment have been in your savings or checking account for some time and weren’t borrowed from your grandmother just last week.

-- Exercise caution when selecting a home.

Having few choices is a negative for buyers --especially if it promotes perpetual indecision that delays the realization of their goal. Those who find themselves delaying indefinitely may wish to work with an agent to better formulate their screening criteria.

“Start with a short list of houses in the best neighborhood you can afford. Then gradually narrow that list to a still shorter one. In the process, you’ll learn more about what you’re looking for,” Davis says.

However, he suggests buyers be wary of any agent who tries to convince you to buy a place that doesn’t meet your core criteria, no matter how favorable the price.

“If an agent pressures you, stop working with that person and find another one,” Davis says.

-- Look for owners eager to sell soon.

Tom Early, an independent real estate broker, says that during all selling seasons there are some “test-the-market” sellers who have no urgent need to move. But there are also highly motivated homeowners who must move due to a job relocation, a financial setback or divorce.

“If a property is vacant, it’s likely the sellers are eager, particularly if they overshot the market on price in the first place and then had to take a deep discount to reignite buyer interest,” Early says.

Even if the home isn’t vacant, there are ways to assess the sellers’ level of motivation. Early says many owners, along with their listing agents, are remarkably frank.

“Some people are astoundingly candid about why they must move. ... You don’t need to pry, just ask why they’re moving, and they’ll open up,” Early says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

In many metro areas across the United States, there are now two totally distinct housing markets within the same community. One is for condos struggling to find buyers. The other is for single-family homes -- with at least a patch of yard -- and is overwhelmed with demand from wannabe owners.

“Buyers who want the traditional detached house with a yard in a nice neighborhood are beyond exasperated trying to compete with other bidders,” says Alexander Cernik, a real estate agent based in the tony suburb of Arlington, Virginia.

Cernik, who is 35 and still renting an apartment himself, has been on a long-term search for a detached house for the better part of this year. Unlike many in his millennial generation, he’s willing to accept a fixer-upper that would require extensive kitchen and bathroom renovations. Ideally, he could find such a property at a below-market price, allowing him to compete with other bidders in the still frenzied Northern Virginia market.

The major problem for people searching for detached houses in coveted metro neighborhoods like Arlington is an extreme shortage of available properties.

Unfortunately, the problem for many buyers is that prices in high-demand areas have continued to escalate. Meanwhile, few homes are available in such communities, given that many owners with mortgages around 3% are refusing to move.

“Demand is low, but inventory is even lower,” says Glenn Kelman, the CEO of Redfin (redfin.com), the national real estate brokerage.

The shortage of supply in many metro areas is pushing up prices. As Kelman notes, June was the second straight month when sales prices have topped asking prices across the nation. Meanwhile, buyers continue to face punishingly high mortgage rates.

Because of the unfavorable economics and extreme competition for detached houses in popular metro areas, some buyers have given up the chase and are now refocusing their search to favor condos in the same general area.

“Condos just haven’t appreciated as much as single-family houses. They are also more widely available in many markets than are separate houses,” Cernik says.

Are you giving up your quest to find the perfect single-family house and have now come to accept that a condo could be your most realistic choice -- at least for the near term? If so, these pointers could prove helpful:

-- Examine data to validate your hunches about the right condo building.

“Look at the resale history for the building going back as long as four years. Notice especially the median number of days it takes to sell units in the building. The more days it takes to go from list to sell, the less liquid the building,” says Fred Meyer, a longtime agent in the Boston area.

Also, he says you should be sure to check the “reserves” of the building -- which translates to the amount of money owners there have set aside for key repairs and renovations.

“If the building needs a new roof and there’s no money for this, all the owners could be hit with a big special assessment. A poorly financed building can become rundown, making it less desirable for future owners,” Meyer says.

-- Question whether a low-condo-fee building would be a good deal.

Nearly all condo buildings impose “condo fees” on their residents. Among other expenses, these monthly charges cover the cost of routine upkeep on a building and its grounds along with support services, like a concierge at the front entrance.

Meyer says would-be condo buyers sometimes shop for a building with the lowest possible monthly fees to contain expenses. But seeking out a building with rock-bottom fees could be a mistake.

“A building with very low fees could actually decline in value due to poor maintenance. That could make your unit hard to sell in the future,” he says.

-- Reject a building with many renters.

Homebuyer advocates are wary of buildings in which a large percentage of the units have been rented out by their owners.

“Owner-occupants feel a natural pressure to ensure that a building is adequately maintained. Renters don’t feel that pressure,” Meyer says.

What percentage of owner-occupants is sufficient? In most cases, Meyer says you’ll want to see more than half the units occupied by owners. However, this rule may not hold in a resort community where seasonal rentals are the norm.

Though it’s wise to avoid a building with a large number of renters, Meyer says it’s also smart to avoid one that prohibits owners from renting out their units.

“That’s a huge right to give up, to be forbidden to rent out your apartment if you want or need to do so down the line,” Meyer says.

-- Pick your condo unit wisely.

Even in the ideal building, not all apartments are created equal. Some will be more salable when it comes time to put your property on the market.

Meyer says it’s usually unwise to buy one of the most expensive condos in a building, such as a penthouse, unless statistics show such apartments have sold readily and for respectable prices.

“It’s usually smarter to buy one of the less expensive units in a building that also has high-end units. Then, over time, the high-end units will help hoist your property values,” he says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)

A divorcing couple in suburban Maryland is under pressure from a court order to sell the contemporary house they bought a half-decade ago, when their marriage was still intact. Their decree requires them to accept the first reasonable offer they receive in their very tight housing market.

Just days after the house went up for sale, a pair of scientists put in an offer on the four-bedroom place, built in 1958. Knowing the house needed work -- including new kitchen cabinets -- they refused to go over asking price. They also insisted on the right to a full home inspection with the chance to back out if serious issues were discovered.

“We’re not naive. We know this house is a real fixer-upper that could cost us boatloads of cash. So getting a thorough inspection is paramount,” says one of the buyers.

The couple are still awaiting the owners’ response to their bid. But meanwhile they’re continuing to search in their favorite area, where available inventory is exceedingly scarce.

Danielle Hale, chief economist for home listing service Realtor.com, doesn’t know the buyers in this true story. But she’s not surprised by the dearth of available listings in popular U.S. suburbs.

“Existing homeowners, many of whom were able to refinance at record lows, are sitting on a really good situation right now. Their payments are low. Their mortgage rates are low. There’s not as much incentive as there normally would be to get out and decide to make a move,” Hale says.

Granted, people are still moving when they face life changes, including marriage, divorce, childbirth and major job transitions. Others are selling when financial or health reversals compel them to do so.

“People are still moving but just not at the same rate as we saw before. We still expect 4 million home sales this year. And as people see their equity increase, there will be a gradual return to a more normal market,” Hale says.

Many homeowners with low-rate mortgages are now weighing the pros and cons of making a move in the current market versus waiting for a decline in rates. One way to help set the timing of your sale is to engage an agent to advise you and to handle your listing when you do go forward.

Here are a few pointers on finding that seasoned pro to advise you:

-- Interview at least two to four potential listing agents.

Without interviewing other contenders, you may be tempted to hire the first agent who comes recommended. But Ron Phipps, a past president of the National Association of Realtors (nar.realtor), says it’s still wise to interview other candidates.

“When you talk to several people, you’ll get different perspectives on your sale,” Phipps says. “Several opinions on pricing can be especially helpful.”

He warns that you should be wary of any agent who suggests you list your place for more than 10% above what others say is its fair market value.

“Find out how they arrived at that higher price,” says Phipps, noting that occasionally some agents may suggest an above-market list price to try to flatter you into hiring them. This practice is known as “buying the listing.”

-- Look for an agent with local knowledge.

Your cousin or that highly recommended friend-of-a-friend might be an excellent agent. But should you consider hiring this person if their office is located a significant distance away from your place?

Absolutely not, says Eric Tyson, co-author of “House Selling for Dummies,” who contends that a faraway agent is likely to be much less effective at marketing your property than one who knows your local turf well.

“Anyone who works more than a 15-minute drive from your place is probably a very poor bet,” he says.

It’s especially wise to have an agent close by if you’re trying to sell a property in a city setting, such as a condo in a high-rise building. In such a case, the ideal agent is typically someone with proven experience selling units in your same building.

“Agents with an intimate knowledge of the floor plans and sales history of your complex can hit the pricing target right the first time. That spares you the agony of multiple pricing adjustments later,” Tyson says.

Agents who say they handle your area should be able to demonstrate this with a list of transactions they’ve done there recently.

-- Ask for information on each candidate’s awards and honors.

How can you identify agents who have achieved an unusual level of expertise? Phipps says one way to distinguish among agents is to ask if they’ve been elected to positions of leadership within their professional groups.

“This shows they have a reputation for collaborating with other real estate people,” Phipps says.

-- Choose a pro with a proven record of closing deals.

During boom times, most sellers feel home free once they’ve obtained a ratified contract, meaning their deal has been agreed upon by both sides of the transaction.

But in a transitional period like the current one, many sellers are understandably nervous that complications along the way to closing might jettison their deal. That’s because qualifying for a mortgage is trickier than it was a few years ago when mortgage rates were lower.

“Selling has become much more complicated. So it’s smart to find an agent with experience handling many different kinds of transactions. Look for their record of closing deals, not just taking listings,” Phipps says.

(To contact Ellen James Martin, email her at ellenjamesmartin@gmail.com.)