How new homebuyers can compete during this 'worst time to buy'
On a warm April afternoon, Andrew DeMasters waited in a steady line with his real estate agent at an open house in Westbury for a three-bedroom split-level home listed at $829,000 that already had five offers over the asking price.
DeMasters, 31, and his fiancee rent an apartment in Forest Hills and have been looking for a house in Nassau for six months. Their dream of owning a home has been stymied by other first-time buyers all competing for the few homes for sale at higher-than-expected prices.
"We're trying our best just to get out there and stay competitive because that's what the market demands right now," DeMasters said. "We had to adjust our budget to potentially put a little bit more down on an offer than we were first considering. But I remain undeterred."
At another open house that Saturday afternoon, 60 people waited at a four-bedroom Colonial in Bethpage listed at $649,000. An hour later, as the line grew behind him, James Sawab, 29, who is renting in Queens, stood patiently. He’s been looking for a house for five months.
"I thought for a while the prices might stabilize, but I don't think it's going to come down and might even go higher," said Sawab, who has also been outbid for several houses and has adjusted his budget from $600,000 to $750,000. "I’m not going to wait anymore, just try to give a best offer and be aggressive."
First-time homebuyers like DeMasters and Sawab have learned to adapt to the ongoing competitive market that erupted in the wake of the 2020 pandemic shutdown.
"It’s the best time to sell and the worst time to buy," said Maddy Camay, broker associate for Compass USA in Syosset, who added "it's "a very difficult time for buyers because of all the multiple offers coming on each property that’s priced right."
First-time homebuyers have a difficult challenge, she said, "because the houses that come on the market go so fast they have to make an immediate decision. The availability is tough for second-time homebuyers too, but at least they have the experience so know what the process is."
What can first-time homebuyers do to compete? Experts share insider tips on how to prepare before you start looking and strategies to consider before you make an offer.
What you should do
Get preapproved. "If you see a house you like, you have to be prepared to make an offer, so the No. 1 one thing to do is to get preapproved for a mortgage," said Nancy Jarvis, an associate broker with Daniel Gale Sotheby's International Realty in Carle Place. "If you wait to get preapproved, you’ll lose the house."
Also, know the price ranges and taxes in the communities you want to explore.
Set yourself up as the perfect buyer. Hector Villatoro, a licensed real estate broker and owner of ARVY Realty in Brentwood, said the strong buyer has a consistent job history, low debt-to-income level and a high credit score.
"Try not to maintain high balances on your credit cards, be careful with your payment history and try not to take on any more debt," Villatoro said, adding that buyers should aim for enough savings to cover closing costs.
Buyers who don’t have to sell another property or adhere to a lease make for a more solid situation because the seller doesn’t have to worry about a delayed closing, Camay said. "Even better is the buyer who lives with their parents and can move quickly."
Don’t bypass an agent. Going straight to the listing agent and representing yourself won’t give you an advantage, said James Manikas, an agent with Realty Connect USA based in Hauppauge. "It's the opposite because then you're actually dealing with someone that isn’t representing you."
In fact, Manikas advised hiring an agent who is specifically a buyer’s agent, someone who works just for you. Otherwise, just because you "picked" the agent, it doesn’t necessarily mean they are required to be loyal to you. Unless you sign a buyer’s agent agreement that states the agent’s loyalty is to you, they may have legal and ethical duties to the seller — or they may be in a "dual agency" role where they are required to disclose to both the buyer and seller that they have divided loyalties.
Vet a mortgage lender. Get a referral for a reputable and trustworthy lender, said Danielle Morandi, a licensed associate broker and attorney with Signature Premier Properties in Dix Hills — one who doesn’t say you qualify for more than you do. "Make sure the lender tells you what you’re qualified for, not just in the short term to go to closing, but in the long term. If this is where you intend to be for the next five, 10 years, you have to make sure that you can afford it," she said.
Hire an attorney you trust. Morandi said that because it’s a seller’s market, the best protection for your interests is to hire an attorney who strictly does real estate, which can be a referral from your agent. "Otherwise the contracts could be skewed to favor one party over the other," she said.
Make an open house work for you. Even though you’ll feel pressured to move through a house quickly, Jarvis suggested taking the time to get a good look. "A lot of buyers like to film the house while they walk through to look at later, but that doesn’t work," she said, adding that most listings include virtual tours on their websites. "Just walk through the house and really know what you want."
Make offers on several houses. Jarvis said if you’re interested in more than one house, you should make an offer on all of them and see what works out. "If you don't and you lose one, by the time you get to the second one, you're not in the game."
Widen your search. Manikas said that sometimes buyers overlook towns because of their preapproval price. "Your agent should have a consultation with you about specifics like if you need a nearby train or if you can expand your commute," he said. "Depending on your preapproval rate, if you’re set on a town, you may be limiting yourself to only what’s on a main road as opposed to more property in a different area."
Don’t hesitate if you’re serious about buying. Villatoro said if you like a house, don’t overthink it. "As soon as you say `let me get back to you tomorrow,’ the house will be under contract already."
Be prepared to offer more than the asking price. Nordeen Accardi, associate broker with Coldwell Banker in Huntington, said most houses are going 5% to 10% over asking price. "While that may seem high, with the interest rates under 3% it doesn't cost you a lot in your monthly payment going forward to come up that extra $20,000 or so," Accardi said.
Keep at it every day. Consistency is key in this market. "This is like a job they have to keep at daily," said Manikas. "Their agent should be sending them listings every day and they should be checking the properties daily. You can’t take weekends off. You have to get in and grind until you find that house. You're probably going to miss out on the first few offers that you submit. But eventually, it will be your turn — if you’re consistent."
Even the most competitive buyers are finding themselves outbid, said Accardi. "That’s because it’s not just the highest offer that is going to the closing table. The cleaner you can make your deal, the better."
To improve their chances Camay said some buyers are waiving the engineer’s inspection, appraisal contingency and the mortgage contingency. All three options have risks.
Forgo the engineer’s inspection? Some are using the option to buy the home "as is" as a negotiating point, but Joseph Farsetta, a licensed New York State home inspector and co-founder of the inspection organization InterNACHI, said buyers should never feel pressured into passing on their due diligence.
"The purpose of the home inspection is to determine what `as is’ is. It means that the buyer is made aware of things that could potentially be wrong in a house, like the heating system isn’t in great condition or the roof is extremely brittle but doesn’t seem so looking up from the ground," Farsetta said. "The home inspection is the only chance you get for a two- to three-hour snapshot of that home."
The engineer can pick up on issues that the buyer can use to make a decision about moving ahead with the purchase, renegotiating the price or setting aside funds to make repairs in the future.
Waive the appraisal contingency? One of the problems with homes selling over asking is that when it’s appraised, it might not be worth what the buyer is paying. If it doesn’t appraise, the bank can reject the loan.
To counteract that, Manikas said some buyers are waiving the appraisal contingency and taking the chance the house will appraise based on comparable sales in the area — or they’ll pay the difference between what the bank will finance and what they’re paying over that.
"If the asking price is $650,000 and you offer $700,000, but an independent appraiser says it’s only worth $670,000, the bank's not going to lend the buyer enough money to cover the difference," Manikas said. "By offering to waive appraisal contingency, you are committing to putting in the extra cash."
He said this strategy can be a mistake because a buyer could automatically have negative equity in their new home. Relying on your agent to know the market can help to guide this decision.
Waive the mortgage contingency? Another strategy buyers use is to put a percentage of the accepted price down at signing and then make it noncontingent on getting the mortgage. The higher the percentage, the more it signals your commitment. But that money is nonrefundable if you don’t get the mortgage.
"You have to be sure you’re getting that mortgage and that you don’t want to walk away from the house," Camay said. "But this is almost as good as an all-cash offer to some sellers. If you're not going all cash, the second-best strategy would be waiving your mortgage contingency."
Programs that help overcome obstacles to buying
How can you make a competitive offer if you have low to moderate income and less than stellar credit? The State of New York Mortgage Agency, or SONYMA, has two programs that can give you an edge: RemodelNY and Give Us Credit.
Dina Levy, senior vice president of Single Family and Community Development for Homes and Community Renewal, said the five-year-old RemodelNY Program takes into account that while turnkey properties are pricing many buyers out of the market, other properties that need work are also part of the available inventory.
“The program is intended to deal with the houses that are a little bit more of a fixer-upper,” she said. “We finance the cost of the renovation of the home into the first mortgage. Basically, we will lend above the as-is value based on needed repairs. That extra funds can go towards repairs that you need to get that home in livable condition. Another way to think about it is we will finance up to 97% of the after-improved value.”
That can be paired with a down-payment assistance program, which contributes 3% of the total loan amount up to a $15,000 cap. “And we treat that as a forgivable loan,” Levy said. “So if the borrower remains in the house for 10 years, that amount is forgiven.”
In 2020, SONYMA purchased 383 RemodelNY loans on Long Island.
Give Us Credit, launched last summer, re-evaluates creditworthiness to make it easier for people to qualify for loans beyond credit score, taking into account actions that demonstrate good financial behavior, but wouldn't necessarily show up in a credit history, like paying your rent on time for five years. For more information, visit http://nwsdy.li/creditli.
SONYMA works with nonprofit agencies that do pre-purchase counseling. On Long Island, these include: Community Development Corp. of Long Island, Community Housing Innovations and Long Island Housing Partnership.