For thrifty buyers or those looking to stick with a budget, spotting a great deal is EVERYTHING.
In real estate, to find a “diamond in the rough,” thrifty homebuyers need to develop a razor-sharp bargain house-hunting strategy, featuring clever ways to save and tips for spotting an opportunity in disguise.
Learn how to play your cards right, and stay within your budget without having to settle for a total dud of a home or sacrificing your must-haves! Here are our nine tips to spot a great home deal.
Look for listings with high days-on-market or a pricing history with several price reductions
It’s almost impossible NOT to gravitate towards listing photos and property stats like beds, baths, and square footage. But if you want to be a bargain hunter, pay extra attention to a listing’s days on the market and its pricing history.
Check how long a home has been available for sale. Conventional wisdom says that if a house sits on the market longer than usual, it must have flaws of some sort. Instead of shying away from it, grab the opportunity to swoop in, make an offer, and negotiate without worrying about competition from other buyers.
Further, you should toggle over to its pricing history and use it as a reference during price offers and negotiations.
Check for homes with “sold as is” labels
During your home search, you’ll see listings sold “as is.” It means these are priced according to their current condition — imperfections, etc. Consider these properties to get discounts upfront, knowing the house won’t be turnkey.
Just take note that any repairs and updates will be your responsibility. You’ll also need to decide how much time, money, and effort you’d be willing to do to bring the house up to your living standards. But not all “as-is” sales will be gut jobs, either. However, you’ll want to get a thorough home inspection to verify that the house isn’t a total lemon.
Bank-owned or short-sale properties are the best listings to start with
Do you want to know another way to deal-hunt for home? Look for short-sale properties headed for foreclosure or bank-owned properties (also called real estate owned or REO).
Some short sales will be listed online as “pre-foreclosures” or “subject to bank approval.” You can also find short-sale properties by digging into public records. You can ask your agent to look up REO listings in the MLS or search using an online foreclosure aggregator for bank-owned homes.
Get your cash ready to bid on a home on the courthouse steps– auction-style. Competition is fierce in the foreclosure market when you’re up against big money, all-cash investors looking to flip or rent out these bargain-priced properties. Meanwhile, short sales can be complex and drawn out since the lender has agreed to sell the home for less than owing, so it will oversee the sale and have to approve your offer.
Off-season buying is key
Timing is everything, especially if you zig when other homebuyers zag. Launch your home search during off-season buying. To drill down into seasonal trends for your market, input your city and look for the “Worst Month” to sell. Remember, less competition means more chances for a good deal.
Needs vs. wants don’t mesh well
Sure, every homebuyer has a list of new house must-haves, but holding out for your “dream home” that has everything you’re looking for may kill your chances of getting a great deal. In fact, your list may have some features that aren’t practical to add, like a basement. If it’s something you need, don’t look for a house without one. Meanwhile, other features on your must-have list, like a remodeled kitchen or fenced backyard, could be added later with money from your savings or a cash-out refinance once you’ve gained some equity.
Have a solid idea of what you’d be willing to compromise on before you start shopping for a home.
Hire a professional bargain hunter a.k.a buyer’s agent
Many homebuyers forget their entitlement to representation and fail to hire an agent who prioritizes their interests. Note that the listing agent has a fiduciary responsibility to work in the seller’s interest. Meanwhile, a buyer’s agent will focus on your welfare, especially one that has developed effective house-hunting and bargaining strategies for finding a good deal.
To add, check the real estate agent’s average sale-to-list price ratio for their buy-side transactions. As a calculation of what a home was listed at vs. what it actually sold for, this number tells you how much an agent historically saves for their buyer clients. A lower sale-to-list price ratio on the buy side is favorable. If one agent is at 99% and another at 95%, go with the latter if all other qualifications are equal.
Compare lender’s fee with a critical eye
Aside from your downpayment, you’ll need to include closing costs as part of your home buying expenses. Closing costs typically range from 2% to 5% of the loan amount and are paid from your cash reserves on closing day. They are charged by your lender for the loan application, origination, and processing, and some lenders offer competitive fees that save you thousands. Hence, it’s best to shop around.
Shop around among lenders and get multiple loan estimates. That way, you can compare fees — along with interest rates and mortgage terms — apples to apples.
Get your finances in order before searching for a home
Taking time to get into a stronger financial position before shopping for a home will help you get a lot of savings. Remember, a buyer with bad credit or a high debt-to-income ratio doesn’t have a lot of leeway in your finances, and one hiccup could disqualify him from getting a loan.
Areas with lower property taxes should be your priority
As a buyer, you must learn how taxes impact your mortgage payment. Sometimes houses with higher price points have mortgage payments that are less expensive than lower price point houses due to property taxes. That said, ask your real estate agent for any local property tax resources and breakdowns. Some will offer a one-sheet that lists property tax rates in nearby cities and counties.
You may also find that changing your target house-hunting area to a suburb without schools, for example, will save you hundreds of dollars a month in property taxes.
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