The housing market is making a comeback and mortgage interest rates are low, but there’s a new challenge for home buyers. Competition from other buyers is on the rise as more people are taking advantage of the situation. This is driving up the home prices as well as shutting potential buyers out of the homes they want.
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This is starting a bidding war among potential buyers and many are making mistakes in the pursuit of the American Dream. The biggest mistake is outbidding on price based on the fear of losing their ideal home. Some home buyers are actually bidding above the asking price just to keep a leg in the door. They are placing bids on homes that are worth more than the actual property. This is especially true in the cases where bank-owned foreclosures are concerned.
In order to avoid making the same mistake and losing thousands you don’t need or can’t afford to lose, here are five strategies a buyer should consider:
Approaching a Foreclosure Bid
According to real estate experts, bank-owned foreclosure properties will sell for about 36 percent less than a regular property listing. Never plan to bid too high on these property types or you risk losing the big discount that you are pursuing with a foreclosed property in the first place. Offer too much and you are losing out on the deal especially if the foreclosure needs remodeling and upgrades. You should take into consideration the full price picture rather than staying focused on securing the winning bid on one property. There are some great foreclosure deals on homes valued less than $200,000 but proceed cautiously and do the math.
Where the Jobs Are
For an area where there is low unemployment ratings there will likely be more competition from other buyers. More jobs mean more qualified buyers and the likelihood more people are vying for the same properties. Keep your options open for several property considerations before investing all your time, money, and effort into a property likely to start a serious bidding war.
Check Out Real Estate Activity
Typically, a home for sale will sit for six months before it sells. You can get a better idea of how much competition you will face by checking out how long homes in the area you are looking have been sitting on the market and compare to how many homes are under contract. In situations where there are many homes for sale, prices likely have dropped. You may find it advantageous to approach a bidding war on a property you really like because in these crowded areas where many homes are on the market, you can still walk away with the home you want for much less than it’s actually worth.
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Do Your Research
Keep tabs on what is going on in real estate in the area you are interested in living for several months so you know the trends and keep your options open for viewing several properties in advance. Rushing to choose and rushing to bid will likely leave you in a precarious position if you’ve suddenly become outbid. Your real estate agent can begin working with you early, like as soon as you know you are serious about buying, and together you can narrow down the choice of properties and prevent paying too much in a bidding war.
If You’ve Been Rejected
Rejection is a part of the home buying process but it is no reason to feel defeated. By leaving your options open and being proactive about house and mortgage hunting, you won’t have to hurry into any decisions. Face the rejection as a lesson learned for next time. The reality is there are many housing options and if one is not right for you at the right time, have confidence you’ll find another that make sense for you.
Pinyo is the owner of Moolanomy Personal Finance Blog, which covers a wide range of personal finance and investing topics, with features that include reviews, comparison guides, and Q&A sections.