First-Time Buyers Facing Stiff Competition

Planet Realty Inc.Advice, Real Estate News, Uncategorized

Gen-Y-Home-Buyers-journeytofinanceFirst-time buyers face trying times in a hot sellers’ market, but have distinct advantages over their competition.

Wow. What a time to be a buyer. The resale real estate markets in Guelph & K-W are on fire at the moment; and it feels like every house that has appeal to first-time buyers is winding up in a competitive, multiple offer situation.

Competitive offer scenarios can either be man-made or organic; depending on the seller’s strategy- determined in consultation with their Realtor. If they seek to artificially create the competitive situation, they tend to under-price their home when it hits the market, to stimulate both interest & demand for it. Simultaneously, they advise buyers that they won’t look at offers for a period of roughly a week to allow for broad exposure to the marketplace. This often results in a number of offers being submitted on the property, provided there was a good marketing plan in place that included ads, open houses, and social media buzz to maximize the reach.

The prime advantage of creating a multiple offer scenario is that the listing agent effectively removes the ceiling for the price of the house. In a traditional listing, the asking price is typically the upper limit for the price of the house barring an organic multiple offer scenario. But here, as far as everyone is concerned, the list price becomes more of a price floor. It’s virtually an expectation from the seller that offers exceed the posted list price. And, because the bidding process is blind, sellers must place their best foot forward and try and guess the moves of all other bidders. This means that if a buyer really wants a house, they often wind up having to over-pay to get it. If executed well, the selling price can be much greater than a house would garner under a traditional pricing model.

Now, the market is so hot, that even houses that have been priced appropriately are being sold in competition. Here, offers are not held back for any period of time, but there may be so much activity on a house immediately that more than one party may submit an offer within the first few days on the market. In this case, the listing agent must notify all the other groups that have shown interest in the property & alert them to the existence of an offer. There typically isn’t the same degree of competition for appropriately priced homes, but even 2 or 3 offers can see the price escalate considerably above the ask.

For first-time buyers, this can be overwhelming. Especially the first time you wind up in competition. Even my own first offer experience wound up in competition, and I didn’t wind up getting that house. I lost by a mere $1,500 that I probably would have paid, and I would’ve made a lot of money if I sold that house today. However, the nature of the process doesn’t often allow for second chances & there’s never a multiple-offer situation where the buyer feels like they got a deal- which can be a tough prospect for your first foray into home ownership.

However, there’s a number of reasons why first-time buyers have a distinct advantage in these types of scenarios, if they can get over the hurdles of their reservations:

  1. Liquidity

You might not have the resources & savings of your parents, grandparents or the older buyers you’re competing against. In fact, its a virtual certainty that you don’t. But what you do have is liquidity & freedom. Chances are, much of your downpayment is in a chequing or savings account, or at worst, an equally-accessible RRSP (see: Home Buyers’ Plan). Meanwhile, some of the competition may not be able to tap into their RRSPs, and may have much more overhead in their daily lives (kids, bills, other loans) than you do. This is all to your advantage. Get pre-approved, and take out a financing condition. This can simplify your offer and give it a non-monetary boost in the eyes of a seller.

2. Flexibility

Somewhat tied into liquidity, the ability to be flexible is paramount. A large (refundable) deposit can speak volumes, especially if you’re including conditions with your offer. It shows that you’re very serious about the house, and willing to commit to tying up a good deal of cash while you’re working towards securing it. Additionally, a seller may occasionally require an exceptionally long or quick closing which can be hard for many buyers to meet. Whether you’re renting or living at home, you have much more flexibility than someone who owns another house and is trying to coordinate closing dates with their own sale. Meeting these kinds of requests doesn’t cost you a cent more, but can give your offer a huge lift.

3. Time

If you still think every investment is a winner, you have some other financial lessons to learn before you dive into home ownership. Sure, real estate is one of the safest & most profitable long-term investments, as recognized time and again; and chances are very good that your house will be too. You don’t have to hit a home run & you don’t have to watch every penny. As a homeowner, you’ll soon learn that a few hundred dollars can seem like a rounding error at times. It may seem like a big deal now, but down the road, you probably won’t miss even a few thousand dollars, and chances are, it’ll all come out in the wash. If your target home is desirable now, it’s likely it’ll maintain a good bit of that intrigue when you go to sell. And when you factor in how quickly your home appreciates, you’ll realize that the worst thing you can do is not act. You don’t lose money sitting on the sidelines waiting for a deal, but you sure don’t make any either; and while you’re waiting, the houses aren’t getting any cheaper.

The market doesn’t wait for you to be ready to buy, it’s one of those things you just have to do. Take the leap. While the foray into home ownership is a bit of a risk, you have to bet money to make money- and there are few scenarios where real estate purchasers have lost. Take an investment lesson from casinos: the house always wins.