5 Mistakes Buyers Make In A Hot Market By Greg & Lisa Doyle, J. Rockcliff Realtors

While home prices are nowhere near
their peak of 6 or 7 years ago, the
nationwide data is clear – the housing
market is getting hotter than at any time
since the recession.

The Census Bureau recently revealed
that new home starts rose 6.9% in early
summer to their highest level in four
years – up 23.6% from a year before.
Additionally, the number of home sales
pending rose 9.5 percent year-over-year
from June 2011 to June 2012, as
reported by the National Association of

Given this rapid turn of the market,
what is a buyer to do? Maybe take a new
approach to prepping for the hot market
house hunt. Here are five hot market
mistakes home buyers should avoid

1. Acting out of desperation. Deep
inhale…and exhale. It is extremely easy
to get caught up in the lightning-fast pace
at which the great homes come on and off
your local market, growing panicked and
even desperate – especially when you see
‘just-right’ homes go from ‘New’ to
‘Pending’ status before you can even get
an appointment to see them!
But know this: desperation has no
place in a home buying transaction. Panic
does nothing but cause people to make
impulsive and otherwise unwise decisions,
ranging from talking themselves into a
home that is not quite what they really
want, to paying way more than they can
truly afford to spend.
If you are in the market for a home,
and your local market is so hot it is

On a hot real estate market, hesitation
can be costly. You can end up in a
multiple offer situation where you would
have been the only offer a few days
prior, or can even end up losing out on a
property entirely because another, more
decisive buyer swoops the place right out
from under your nose.

Morals of the story: Make sure you
maintain a current loan approval in place
at all times – you should not be out house
hunting if you do not have a current loan
approval. And, for those new to the
house hunt, go to as many open houses as
possible, even when you are not
completely in love with the listings you are
seeing online. Once you have seen a
good number of homes, you will have
more material against which to compare
every other home you see.

3. Ignoring the market entirely. It is best
to make your real estate decisions based
on what is happening (and what is
forecasted to be happening in the next 5-
10 years) in your family, your career and
your life. That said, when it comes time to
execute your decision to buy, it is
foolhardy not to take market dynamics
into account. You do not want to fall under the panic-inducing spell of the market, but neither do you want to ignore it. Rather, ask your real estate professional to
help you pay attention to neighborhood-specific information, like:
•which types of properties move quickly,
•how many days they generally stay on the market,
•whether multiple offers are a reality you need to face,
•how much over-asking price homes like the one you want are selling for.

Then, use this information to make strategic decisions about
your home buying process, covering everything from which
properties and areas you will focus on, how quickly you will need
to get out to see listings and – most importantly – what price
range you should focus your search on.

4. Financial fogginess. Do not run the numbers in your head.
Home buying is the big leagues, financially speaking, so you
need to be crystal clear on precisely what you can afford.
Sit down and dive into your last few months’ checking and
other account statements to get a complete picture of what you
can afford and to get conscious about what sacrifices you might
want or need to make. It is not overkill to bring your tax advisor
or financial planner into this conversation, so they can help you
understand how your tax situation as a home owner may change,
freeing up some extra monthly budget room for your mortgage,
property taxes, insurance and HOA Dues or Private Mortgage
Insurance (PMI), if applicable. Also, make sure you include line
items for your savings, retirement investing, school tuition, travel
and recreation – the sorts of things that lenders will not account
for when they tell you what their guidelines say you can afford.

5. Overpaying. There are several ways to overpay for a home.
You could pay more than the property is worth, which is difficult
to do if you are buying the home with a mortgage loan which
requires an appraisal. You could pay more than you need to in
order to get the property, which sometimes happens to buyers in
multiple offer situations, and buyers who have experienced the
trauma of losing out on home after home, and who just decide to
make a high offer to get closure and secure a place they like.
Whether any price meets this second definition of ‘overpaying’ is
difficult to ascertain, as it would require us to know what would
have happened in the hypothetical world in which they did not
offer such a high price and so, might not actually have been the
successful buyer.

The antidote to both these forms of overpaying is simple:
pulling the comparables before you decide what to offer. It only
takes a minute, your real estate professional will help you, and it
is just not prudent, in 2012, to decide on an offer price without a
fresh pull of the sales data on the similar, nearby homes that
have recently sold. If your real estate professional includes
active and pending sales in their pull of the comparable data set,
you may also find out useful information like whether several
other competitive properties have just hit the market, or that all of
the competition is now pending – things that might also inform
your motivation levels or price strategy.

And there is a third, more insidious form of overpaying that
haunts hot market buyers as well: paying more than you can truly
afford for a home. It is fine, even expected, that if you thought
you were buying into a depressed market and instead end up
buying in a hot one, you might have experienced some upward
‘creep’ in what you are willing to spend for a home.

This form of overspending is more difficult to do now than it
was before the housing market recession began, as lender
guidelines are much tighter now than before. But it is still
possible – especially as lenders do not account for what you
should be putting aside for savings, for retirement, and other
essential monthly budget items that impact what you can truly
afford to pay for a home.

The only cure for this form of overspending is for you to set in
stone what your actual, top-line maximum home purchase price
is – even if you are the only one who knows this number, in your
own head. Your mortgage professional can help you work
backwards from the amount of cash you have to invest in the
transaction and the maximum amount you can devote to your
housing costs on a monthly basis, to arrive at your maximum home
purchase price.

Long story short – if you have been pondering the prospect of
buying a home for a long time, you might feel like you have been
sitting in the economy section of an emotional roller coaster.
Prices fell so fast you might have doubted whether buying makes
sense at all. Now, with barely a plateau, the market is on an
upswing – and every other buyer in town seems to be dropping
offers on the choice homes before you can even get out to see
them. Use these tools to avoid repeating the mistakes of the last
generation of homeowners.