Smart Moves

Since 2020, a couple of high school teachers in Colorado have been on a determined drive to amass a down payment to buy their first home. But despite extreme frugality measures, like cutting food costs to the bone --they’ve yet to reach their goal.

“Down payments have always been important, but even more so today,” says Skylar Olsen, chief economist at Zillow, the national real estate firm. She says a few statistics tell the whole story for average young families.

As she estimates, a down payment of $127,750 is what a household making the median income needs to put down when purchasing a typical U.S. home -- valued at about $360,000 -- so that their monthly mortgage payments take up no more than 30% of that household’s monthly income.

According to Olsen, an increasing number of young buyers are seeking assistance to finally get their foot in the door of a first property.

“Saving enough is a tall task without outside help -- a gift from family or perhaps a stock windfall. To make the finances work, some folks are making a big move across the country, co-buying or buying a home with an extra room to rent out,” she says.

Of course, each year many young adults do achieve a first-home purchase, even in popular neighborhoods where available properties remain scarce and prospective buyers abound.

One important factor determining who succeeds is how an offer is crafted once the right property is found. Here are a few pointers:

-- Show your love for the house that you want.

When making a fair offer, how can you convince the sellers that you’re sincere? Sid Davis, a real estate broker in Utah, says his clients have gotten results by attaching a brief handwritten note to introduce themselves to the sellers.

“Home sellers are much more likely to warm up to people who appreciate their property. It’s an art form to convince the owners you’re not just a ‘grab and run’ opportunist, particularly now that investors are coming out of the woodwork,” says Davis, the author of “A Survival Guide for Buying a Home.”

But Michael Connerly, the author of “How to Win With Real Estate,” cautions buyers against writing long or flowery letters to owners.

“[T]here’s always the risk that the sellers will get the impression you’re trying to manipulate them or take advantage with a lowball offer,” says Connerly, who worked as a real estate broker for more than 17 years.

-- Always attach a preapproval letter to your offer.

Because sellers are beginning to outnumber buyers in an increasing number of areas, some purchasers see no point in bothering to obtain preapproval for mortgage financing. But bargain-minded buyers know better, says Tom Early, a real estate broker and former president of the National Association of Exclusive Buyer Agents (naeba.org).

“In the present market, you absolutely want preapproval to remove all doubts in the seller’s mind that you’re qualified,” Early says.

Granted, those with tarnished credit or checkered employment situations always face a big challenge when seeking to secure home financing. But if you have a steady job, reasonably good credit and a minimum of debt, your odds of obtaining a mortgage preapproval letter from a reputable lender are still very good, Early says.

-- Never surrender your right to a home inspection.

While it’s true that a condition-free offer is a stronger bid, Early urges you not to waive your right to make your purchase contingent on a satisfactory home inspection.

“I tell my clients that either you have the house inspected or face the prospect of buying a pig in a poke,” Early says.

In most cases, home inspectors find only minor problems, such as leaky faucets, shaky stair railings or a malfunctioning doorbell. These issues are soon resolved at the owners’ expense, and the deal goes through as planned.

“But sometimes, inspectors find catastrophic problems -- like a serious issue with the foundation or a major problem with the home’s electrical system. With a discovery like that, you’ll want the right to walk away from the deal,” Early says.

-- Face the reality that timing is critical to the highly motivated seller.

Whether or not sellers accept an offer, especially a low one, often depends on how much pressure they’re under to sell, Davis says. Obviously, those in a rush are usually more willing to entertain a lowball bid, even if it means making a counteroffer to bring up the dollar amount.

One retired accountant was a case in point. Once she reached her late 60s, she lacked the energy to keep up her elaborate landscaping. So, when a condo-apartment came up for sale in a retirement community where several friends lived, she immediately snapped it up. By the time the young couple came along, however, her house had languished unsold for months, and she was in a financial pinch.

“Of course, she didn’t get as much money as she’d hoped for her property. But she was delighted at the chance to sell to nice people and move on with her life. So, in the end, this was a win-win deal for everyone concerned,” Davis says.

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

A couple in their early 40s who own a small tech firm are determined to finally sell their 5,000-square-foot colonial-style house in favor of a place twice the size in the same swank neighborhood.

“The new house is the lure. It has a swimming pool, tennis courts and two full acres of land. That compares with the postage-stamp lot where they now live. The couple, who have two elementary-school-age boys, wants an ideal place where the kids can host playdates and parties for their friends,” says Lauren Davis, the Sotheby’s agent handling the couple’s transactions.

Davis is amazed by the recent upsurge in home listings in her suburban area as well as across the nation. She’s especially surprised by the number of owners willing to sell during the typically slow hot summer months rather than waiting until fall.

Indeed, the number of U.S. properties now actively on the market has increased by more than 36% in the last twelve months, according to Danielle Hale, chief economist for Realtor.com, the home listing company.

She estimates that American homeowners are sitting on a record $17 trillion in equity. An increasing number are tempted to sell their present property to climb to a higher rung of the property ladder.

The couple selling a colonial house for a trade-up move are fortunate to live in a community where inventory remains in short supply. They’re confident that their present house will sell quickly for at least the full asking price. But not every neighborhood is so strong for sellers. That means some would-be sellers are waiting for mortgage rates to fall before attempting a trade-up move.

Obviously, no economist or real estate analyst can perfectly predict the direction of your local housing market. That leaves it to households to decide their own course.

Here are a few pointers for potential trade-up sellers:

-- Reconsider your reasons for selling.

Anxiety can prevent people from moving ahead, even when it’s against their interest. But those convinced that now is a good time to buy a bigger home shouldn’t let unwarranted fears constrain them, says Michael Crowley, a real estate broker and past president of the National Association of Exclusive Buyer Agents (naeba.org).

He says one way to put your fears about real estate in perspective is to reexamine your original reasons for moving to a better house. Has your family outgrown its small space, meaning that your kids must share bedrooms? Are your plans for a home-based business on hold?

“It’s worth remembering that life is short and delaying your sale may not yield the financial advantages you expect,” Crowley says.

-- Review statistics on demand for homes in your area.

In many areas, inventories of unsold homes are still very tight or shrinking, making multiple bids commonplace. But in other neighborhoods, the inventory balance is gradually getting better for those seeking to move up. And in still other areas, the picture is mixed. It all depends on your target market

Suppose, for instance, that you’re selling a property in a starter-home community in great demand by millennials trying to break into homeownership. Meanwhile, you’re intending to buy in a luxury-home neighborhood where there’s an ample supply of properties and buyers don’t outnumber sellers. In that case, you could do well on your dual transactions.

“Starter-home buyers are still having a crazy time trying to burst into ownership,” Crowley says.

If you live in an area with many available housing options, you can afford to take somewhat more time to make your selection and seal your trade-up deals. But Davis cautions against waiting indefinitely to buy in any area that remains red-hot.

-- Locate an experienced mortgage lender to help assess your plans.

Not sure whether you want to go forward with a trade-up move? Worried that the numbers or your credit history could scotch your chances for better housing?

If so, Eric Tyson, author of “Personal Finance for Dummies,” recommends you visit the office of a mortgage lender who can analyze your personal situation and determine whether you’d be eligible to buy that bigger house you have in mind.

Even if you’re confident you can qualify for a mortgage on a bigger home, it’s good to gain preapproval to enhance your chances of acquiring your dream house.

As always, lenders want certainty that any mortgage they originate will be solid. This means you’ll need to be prepared to answer the lender’s request for documents.

“Don’t assume that lenders are less stringent than they were in the immediate aftermath of the Great Recession of 2008. That’s why it’s good to have an expert look at your financial documents before committing to a sale and trade-up move,” Tyson says.

As proof of income, many mortgage lenders currently insist on much more documentation than the customary pay stubs and W-2s. They may also require federal tax returns. Also, most lenders now want proof that the funds you’ve amassed for your down payment have been in your savings or checking accounts for some time and weren’t just borrowed last week from a family member.

“In all likelihood, moving up to more luxurious quarters means proving you have the assets and earning power to handle your monthly mortgage payments,” Tyson says.

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

A cardiologist in his early 30s has waited for more than five years for the right time to exit his rented city apartment. He dreams of buying a suburban house with a big, professional-level kitchen where he could pursue his passion for Italian cooking.

But to date the timing has never seemed right to get a fair deal on the sort of spacious house he has in mind.

“During COVID, prices were ridiculous, and there were very few properties for sale. Buyers lined up around the block. I’m no fool, and I wasn’t going to compete with those crazed buyers with all their bidding wars,” the cardiologist says.

But in recent weeks more neighborhood markets have been cooling somewhat, giving a small degree of hope to determined homebuyers like the doctor. The statistics that give them the most hope involve the recent major increase in available inventory and the reduction in the number of home shoppers.

“The market is at an interesting point, with rising inventory and lower demand,” says Lawrence Yun, chief economist for the National Association of Realtors (nar.realtor).

Indeed, the number of available properties has grown by more than 36% within the last year. This is despite many current homeowners continuing to cling to low-rate mortgages they acquired through refinancing during the pandemic.

Will more supply of available properties temper home prices for prospective purchasers?

That depends on where you live and the level of inventory in your neck of the woods, according to real estate specialists.

Andy Walden, a vice president for Ice Mortgage Technology, a firm serving the home loan industry, anticipates slightly lower home prices in “pandemic boomtowns,” including those in Florida where inventory growth has been especially rapid. But he doesn’t foresee major price drops in most parts of the country.

That view is shared by Shaun Donovan, a former secretary of the U.S. Department of Housing and Urban Development, who notes that overall housing demand still greatly outstrips supply throughout the nation. He says that’s created a housing affordability crisis, particularly for would-be entry level purchasers.

Still, impatient wannabe homeowners, like the cardiologist seeking a house with a big kitchen, are refusing to wait on the sidelines any longer to make their first purchase.

“To heck with all the prognostications about price levels. I just want one great house, and I’m tired of putting my plans on hold. All I’m asking for is a fair deal, and I’m ready to go,” he says.

Here are a few pointers for buyers:

-- Consider listings that have been sitting unsold for a lengthy period.

Stale listings, which have been on a market longer than the average for the neighborhood “can be a treasure trove of good values,” says Stephen Carpenter-Israel, the president of a real estate firm affiliated with the National Association of Exclusive Buyer Agents (naeba.org).

As Carpenter-Israel says, the surprising reality is that there are stale listings in even the most popular neighborhoods -- because some sellers overprice their listings.

But he cautions that selling times can vary widely depending on the popularity of a community and the local economy.

“Look at each home individually and find out its listing history. It may be the home was listed with a different agent before and then later relisted with a new agent. Because of that, you may need to dig to determine how long it’s really been up for sale,” he says.

Sid Davis, a real estate broker and the author of “A Survival Guide for Buying a Home,” says that even after a series of price reductions, an initially overpriced home typically retains its stigma, which continues to drive away potential buyers.

“People get suspicious of the house that sits around. They wonder if there’s something seriously wrong with it,” Davis says.

Attentive buyers realize that among shopworn properties there can be prime bargaining opportunities -- even in an area where inventory levels are tight. This is especially likely if the owners are under pressure to move.

-- Educate yourself on values in your target community.

To navigate any market skillfully, you need to inform yourself about property values in the area where you’re searching.

Very often, the owners of a stale property will ratchet down the price in incremental drops. The key for a prospective bidder is to know when the sellers are approaching a realistic price point.

“You and your agent need to do a thorough analysis of the area so you’ll have a good feel for the true value of any house you like,” Davis says.

The key to determining market value is to closely examine the data on recently closed home sales of similar properties -- known as “comparables.”

“Make sure your agent shows you very recent comps that are really similar to the house you want to buy,” Davis says.

“When deciding how much to bid on a stale listing, don’t focus on the list price. Instead, orient your offer to what the market is really paying for that kind of a house in that neighborhood,” Davis says.

-- Make sure you’re alerted when price drops occur.

Have you found a home that’s appealing but believe it’s significantly overpriced?

If so, Carpenter-Israel suggests you track that property closely, waiting for its owners to take a price cut that brings it closer to its true market value.

To stay alert to potential pricing changes for the property of your choice, Carpenter-Israel recommends you ask your real estate agent to keep you constantly updated by email or text.

“Ideally, you should be kept informed on a daily basis,” Carpenter-Israel says.

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