Buyers Waive Contingencies, Bring More Money to Close

(Source: magazine.realtor)  

June 25, 2021

To win a bidding war, more buyers are waiving appraisal and inspection contingencies, according to the latest REALTORS® Confidence Index survey. Home buyers most commonly are waiving the appraisal contingency (28%) and the inspection contingency (25%), shows the survey of more than 3,300 REALTORS®.

The buyers waiving contract contingencies are those who are either paying cash or using conventional financing.

Buyers using FHA or VA loans can’t waive the appraisal or inspection contingencies due to financing guidelines, Gay Cororaton, research economist for the National Association of REALTORS®, writes on NAR’s Economists’ Outlook blog. Therefore, those buyers may be at a competitive disadvantage compared to other buyers who don't have to follow certain financing rules. For example, FHA inspection standards require that components of a home are in good working condition, such as the heating unit, water heater, and smoke detectors. FHA buyers are unable to waive the inspection to compete and still get their loan.

“In a housing market where sales are moving swiftly, the time to undertake the inspection and appraisal is creating a hurdle for buyers obtaining FHA-insured loans, who are typically first-time buyers, and buyers obtaining VA-guaranteed loans,” Cororaton writes.

Buyers also must compete against those who are bringing more money to close. The share of mortgages with at least a 20% down payment increased to 52% in May, up from about 40% in 2011, the NAR survey shows. Nearly one in three first-time buyers made a down payment of at least 20%, up from about 25% in 2011.

Home buyers with conventional financing are edging out those with FHA and VA loans, which offer low down payment financing. Conventional conforming mortgages, which conform to guidelines set by Fannie Mae and Freddie Mac, accounted for 74% of mortgages issued in May, an increase from 65% in 2018. On the other hand, the share of FHA-insured mortgages comprised 14% of mortgages in May. In past years, that percentage was around 20%. Also, the share of VA-guaranteed loans fell to 7% in May, down from its 10% average in recent years.

Real estate pros report that VA loans, for example, have a reputation for receiving low appraisals that can make it difficult for buyers to compete in an environment where home prices are escalating quickly. VA appraisals often can average five to 15 days to complete—a lengthier timeline than many other loans. “It is extremely difficult for FHA/VA buyers to get accepted in a multiple-offer situation,” writes one real estate pro in the REALTOR® survey. “They are on the bottom of the hierarchy.”

18 cities where home values jumped 15% or more during the last year

(Source: grow.acorns.com)

Almost half of all homes sold in April were under contract within seven days of being listed.

Published Thu, Jun 3 2021

Gabriel Cortés
@GABECORTES

Spring and summer are always busy times for the real estate market, but this current season is shaping up to be one for the record books: Not only are home prices up across the country, according to data from Zillow, but the month-to-month increases since January have been the biggest that Zillow has ever recorded.

Nationally, the average home price rose 1.3% in April alone, the biggest month-to-month jump in the 25 years that Zillow has been recording that data. For context, home prices rose just shy of 0.5% in April of last year and just over 0.25% in April 2019.

The increase in home prices is even more eye-popping when you consider that home values increased 11.6% nationwide in the last 12 months. In the country’s hottest markets like Boise, Austin, and Phoenix, those increases were more than 20%.

In total, 18 metro areas saw home values increase at least 15% from April 2020 to April 2021, according to Zillow data.

Those jumps add up to serious cash: The median home price increased more than $100,000 in Boise in the last 12 months, and it increased almost $90,000 in Austin and more than $60,000 in Phoenix, according to Zillow data.

The housing market is not ‘going to slow down anytime soon’

The yearlong, red-hot housing market has largely been attributed to two factors. New buyers looking to take advantage of record-low interest rates have sent demand soaring, while pandemic uncertainty has brought down supply by depressing the number of homes for sale.

While experts believe more homes will be listed in the coming months, those increases in supply are unlikely to tame prices, says Nicole Bachaud, economic data analyst at Zillow. “This isn’t really going to slow down anytime soon,” Bachaud says. “More inventory is probably going to come onto the market later this year or early next year, and that might start to moderate price growth. We’re not going to see price growth decreasing.”

The top-dollar prices that homes are fetching are not the only indicator of just how desperate some buyers are feeling right now. The number of days that homes are on the market has dropped precipitously in recent months.

Almost half of all homes sold in April were under contract within seven days of being listed, according to Zillow. More than three-quarters were under contract in less than a month.

The speed at which these purchases are happening doesn’t help the inventory problem, Bachaud says. “That’s what’s going to keep inventory down,” she explains. “We have a lot of homes coming on the market, but they’re gone in seven days.”

Be ready to make your move in the hot market
The seller’s market is likely to continue for the remainder of the year, not only because supply is so low, but also because many prospective buyers have the financial bona fides to make a big purchase even as prices rise.

“There’s a lot of really strong buyers in this market,” Bachaud says. “There are a lot of buyers that are ready to move in this market, and they’re moving quickly when they find the house.”

While the fundamentals of homebuying, including having good credit and a solid down payment, continue to be key in this ultracompetitive market, here are some tips to make sure that you’re one of those strong buyers, according to real estate professionals.

• Get a preapproval letter from your lender. Before you even start looking at houses in a competitive market, get a preapproval letter from your lender that you can whip out if you want to move on a property, said Debra Hall, a real estate agent in Northern Virginia. “A preapproval letter is when you have reached out to a lender,” Hall said. “They’ve checked your credit. They’ve verified your employment. They’ve looked at your bank accounts, and they deem you truly qualified to buy a house.” Putting in that effort up front can save valuable time, and give you an advantage over other offers.
  
  
• Don’t forgo the home inspection. The tight housing market has driven some anxious buyers to skip home inspections in order to seal the deal, but that’s a very risky move, said Sue Riley, a real estate agent in Northern New Jersey. “You never want to forgo an inspection. Ever,” Riley said. “There’s a lot of hidden things that can come up, and you don’t want to be on the losing end of that.”
  
  
• Write a note. When you send a personalized letter to the seller introducing yourself, it can create an emotional connection between the two parties, said Leigh Marcus, a real estate agent in Chicago. “When a buyer writes the letter — the kind where the sellers can see who they were when they were buying — that resonates a lot with them,” Marcus said. That personal touch could help you outpace the competition.