“Price is what you pay. Value is what you get” – Warren Buffet.
The current state of the Central Ohio market is that there are many more buyers than there are sellers. The historically low level of inventory in the market is driven by a number of factors, most importantly the slow rate of new builds, and a pandemic in which sellers appear to be waiting it out on the sidelines. The law of supply and demand is in overdrive, demand far exceeds supply, and prices are rising, quickly.
In a buyer’s market, there is ample inventory and a buyer has more influence over the purchase price of property. This often results in a buyer ‘getting a deal’ because they have choices. In a seller’s market, a deal is much harder to find due to the scarcity of available property. The buyer mindset has shifted away from ‘getting a deal’ to ‘winning a bidding war’.
Buyers today are more focused on the affordability of a home than getting a deal below list price. Sure, ten years ago a buyer could expect to pay below the list price, but in today’s market they should expect to pay above it. It is crucial that a buyer know how much of a mortgage (i.e. monthly payment) they are willing and able to take on. Once determined, and with the help of a good agent, this maximum monthly payment should be translated into the maximum purchase price for any particular property.
I recommend that buyers do the following prior to starting their home search. First, reach out to a lender to determine how much home they can afford i.e. the maximum amount of money they are qualified to borrow. In fact, it is common practice to submit a pre-qualification or pre-approval letter with an offer to purchase a home. Next, determine how much home they are willing to afford i.e. the maximum monthly payment that fits within their budget and financial goals. There is an important distinction between how much home a person can qualify to buy, and how much home they are comfortable buying. Armed with this knowledge, they will be better prepared to quickly determine the maximum purchase price they are willing to offer for any given property.
**There are many additional factors that a buyer needs to consider when preparing an offer.** For example, how to handle a potential gap between the purchase price and the appraised value, which factors into how much a lender is willing to lend. A real estate agent is a professional who guides buyers through these and any other issues that may arise.
This article addresses just one aspect of an offer, namely price. Crafting the terms of a contract is just as important and will be covered in a future edition.
