It wasn't so long ago that you could shop for homes at your leisure, make an offer significantly below asking price and end up with a bargain.
In many parts of the country, buyers outnumber sellers, and homes listed for sale in the morning may be under contract by lunch. Homes in good condition in desirable neighborhoods draw multiple offers and often sell for more than their asking price.
That means buyers must do their homework and be ready to pounce when they find the right house or condo. "In a tight market, you're going to have to act swiftly," says Steven Aaron, who owns a real estate brokerage in Los Angeles and is one of the protagonists of the HGTV series "Selling L.A." He says 90 percent of his agency's listings draw multiple offers. "There's not going to be time to dilly-dally," he says.
At the end of November, according to the latest statistics from the National Association of Realtors, there was a five-month supply of homes for sale nationwide; six months is considered a balanced market. The median time a home was on the market was 56 days, up from 54 days in October but considerably lower than the 70 days in November 2012.
More than a third of the homes sold in November had been on the market for less than a month. Distressed homes - foreclosures and short sales - accounted for 14 percent of sales, down from 22 percent the previous year.
Experts predict the inventory crunch will ease some next year, but exactly when and how much depends on the city. If this is the right time for you to buy, don't be deterred by statistics. Do your homework, and you can still buy a house without losing your mind.
Get your finances in order first. Check your credit well before you begin your search, and a year ahead is not too early. If you find mistakes on your credit report that lower your score, it will take time to get those corrected.
"Clearing up a mistake is not just a phone call," says Andrew Strauch, vice president of product innovation and marketing for MRIS, which runs the multiple listing service in Washington, D.C., and surrounding areas. He recommends starting the process 12 to 18 months before you think you might buy.
Once you've saved enough for a down payment and closing costs and have done everything you can to raise your credit score, it's time to shop for a mortgage. Get quotes from at least three mortgage brokers or bankers and make sure you are comparing apples to apples. If you don't like the interest rate you get from one lender, try another. "Interest rates are still low ... and banks are constantly coming up with new offers," says Ruben Sanchez, a real estate consultant for Merca Real Estate Services in Miami.
Once you've found a mortgage professional, get preapproved, not just prequalified, for a loan. You will need a strong preapproval letter to attach to your offer, so the sellers will feel confident that you won't run into financing problems that would sink the deal. To get preapproved, you'll need to submit your income documents, tax returns and more so that the only thing left to approve is the house.
This is also the time to decide how much you want to spend. Just because a bank will approve payments of $1,500 a month doesn't mean you should spend that much. Be sure to include taxes and insurance in your calculations.
Research neighborhoods. Online real estate portals such as Trulia and Zillow, as well as listings from the multiple listing service through Realtor.com, Redfin or real estate agents' websites have given consumers more information than they ever had before. That makes it possible for would-be buyers to research neighborhoods and follow trends.
Decide what's important to you in a home and what is less important. If good schools matter, narrow your search to a certain school district. Consider how far you're willing to commute, and try the commute at the time you'll be doing it because it won't be the same as it was Sunday afternoon.
As you narrow your choice of neighborhoods, talk to people who live there, including walking the streets and talking to neighbors. Attend open houses in those neighborhoods. That gives you an opportunity to talk to agents and evaluate homes without any pressure.
It's crucial to get as much information as you can before you begin your home search. Once you find a house you like, you won't have time to investigate the neighborhood before you make an offer.
Find the right agent. The role of the real estate agent has changed considerably in recent years. No longer do you need an agent to find your listings. Many buyers send their agents lists of homes they'd like to see.
Still, the choice of agent is important because the right agent can make or break a deal. There is no cost to a buyer to use a real estate agent, but that doesn't mean you should work with the first agent you meet at an open house.
Buyers should interview several agents to find the right match. Ask friends and co-workers for referrals and see whose signs dominate in your target neighborhoods. An agent who has a lot of contacts in a neighborhood may have access to "pocket listings" of homes that are not in the MLS.
[Read: 7 Reasons to Buy a House Before 2014.]
"Buyers often think the buyers' agent is there to find them the house," Aaron says. "It's not like it was 25 years ago when you waited for your agent to tell you something had gone on the market. ... Finding the home, that's the easy part."
Most buyers need an agent to help them navigate the process, including crafting and negotiating the offer and dealing with issues that may arise with inspections and appraisals.
Be flexible in what you'll accept. First-time buyers are often swayed by décor, and they don't always understand what features of a house can and cannot be changed. It's a lot easier to add stainless steel appliances than it is to add a bathroom or change a floor plan. A new roof can be installed quickly and easily in a few days, while a kitchen renovation may take months. And location, of course, can never be changed.
"Buyers are more realistic than they used to be ... because the market is demanding that they be," Aaron said. "If not, you're just going to be on a wild goose chase."
Move fast and be flexible on terms. Set up automatic alerts to be notified by email or text message when homes go on the market or prices are reduced. If your agent doesn't set that up for you, do it yourself on one of the online portals.
Once you find a house you like, be prepared to act. In the hottest markets, a well-priced listing in a good neighborhood may draw multiple offers on the day it's listed.
Agents advise drawing up an offer with as few contingences as possible. That could include agreeing to pay the difference between the contract price and the appraisal value in cash, shortening the time for inspections or even waiving the financing contingency if you're sure you've got the financing locked up. Aaron also advises submitting backup offers on homes you like, because if the first deal falls through, you're next in line for the house.
If you can, find out what is most important to the seller, whether it's a quick closing, more money or knowing that the house where he raised is children is going to another nice family. Sometimes the seller wants to stay longer. "A lot of times when things are moving so quickly, the seller isn't prepared with a place to go," said Bo Mastykaz, a Redfin agent in Miami.
Amid the current frenzy, it's easy to get so caught up in home-buying fervor that you sign a contract for a house you don't like or can't afford. While you're going to have to make some compromises, you don't want to make compromises you'll regret later.
"Buying a house is emotional," Strauch says. "Don't be afraid to walk away when it's not the right house for you or it's not the right financial terms for you."
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