It’s been a while since we’ve added a new post to Slightly Educational, and the reason for that is we’ve been busy buying a house! The go-getters out there would say, “cool, but does that mean you can’t write a blog and move at the same time?” Well, the truth of it is that homebuying is a lot more involved and draining, both physically and emotionally, than we would have ever thought (or those HGTV shows make it out to be).
The good thing about this downtime and some big life changes is that we have a lot of new life lessons to share. The good and the bad… we’re excited to share what we’ve learned with everyone so you’re not caught off guard when you’re ready to make that big home purchase. In this article, we will explore our experience buying a home during a seller’s market.
Was the Homebuying Process Enjoyable?
Our homebuying process was not an easy one. Looking back at the process, this is likely a huge understatement when I think about the near emotional breakdowns that occurred in our household. Our real estate agent has been involved in over 300 real estate transactions and he said this was the worst one he’s ever seen. I don’t say this for pity…in fact, we are beyond happy with our new home. No, I say this because there were a number of factors that made this an especially challenging real estate transaction that are worth exploring further.
The 2020 Real Estate Market Explained
Supply and Demand
First, think back to your Econ 101 course (ignore the familiar headache that arises) when your professor explained the elegant mechanics of how supply and demand dictate price and scarcity (see the chart below). When we bought at the end of 2020, the real estate market was strongly one-sided, benefitting sellers due to high buyer demand and low inventory.
Buyer demand was driven by the low cost of borrowing money due to plummeting mortgage rates. Another factor driving demand was the overnight need for more space at home because of a shift to work-from-home and the fact we were stuck at home due to the pandemic. Housing supply (or inventory) was stifled primarily due to sellers’ discomfort with moving during a global pandemic caused fewer new houses to come on the market and delays in new home builds.
To put this into historical perspective, realtor.com stated that in December 2020 national inventory declined by 39.6% over the prior year, and fell below 700,000 for the first time in our records. This caused home prices to increase 13.4% year-over-year and decreasing the time houses stayed on the market by 13 days.
This environment is the primary impact on the below factors of buying a home during a seller’s market.
Seller’s Negotiating Power
The above housing market scenario is called a seller’s market because the seller is the one who holds the negotiating power. This is important because if the seller knows there are plenty of qualified buyers interested in a property, they are able to drive up bidding wars as well as forego concessions that may be normally given in a more equal market.
In our scenario, unfortunately, we were dealing with an investor who had no emotional attachment to the home and no life event driving his timeline. His (lack of) relationship with the property coupled with a seller’s market gave him a great deal of negotiating power. While we were able to get concessions in some key areas during the escrow process, they were nowhere near what we would have been able to agree on in a different environment.
For instance, while each real estate transaction is unique, common terms include 30 days close and 21 days to remove all inspection contingencies. Since the market was so competitive and we were unwilling to budge on our offer price, we decreased our inspection contingency time to 10 days to sweeten our offer. This required us to move quickly once our deal was accepted, but made our offer more attractive because there was a lower likelihood we would drop out of escrow later into the process. Having already fallen out of escrow once, the seller appreciated these terms.
Overburdened Lenders
With interest rates at historic lows, many lenders were having a hard time keeping up with requests for new mortgages and refinancing. This created some challenges for us when our primary lender could not close in 30 days or less because of high demand and we were required to use an alternative lender. Fortunately, there are a lot of lenders out there and we were able to find a reliable one off a referral, but it added a layer of stress as we were working through the early stages of escrow.
Falling Out of Escrow is Common
Once we knew we were ready to move, we were glued to all of our favorite real estate sites. This oddly addictive action — yes, SNL even did a spoof comparing Zillow to porn for 30-year-olds — meant that we were seeing a lot of the homes on our watchlist go into escrow only to fall out weeks later. At the time, we couldn’t understand how houses would fall out of escrow so often, but after going through a challenging escrow process ourselves, we are surprised it doesn’t happen more often.
In our scenario, after not getting three homes we put an offer in on, we were fortunate that our current home fell out of escrow from a prior buyer and we were able to snatch it up. Since we were the next best offer, the seller came back to us to see if we were still interested before considering putting it back on the market. We were excited to let the seller know our offer was still on the table and we entered into a contract.
High Moving Costs
Another part of the homebuying ecosystem that was impacted was actually moving your stuff. We were shocked to find that regardless if we were going to move on our own or hire professional movers, the cost was much higher than we anticipated. Prices were driven up by the increased number of people moving, increasing demand for truck rentals and professional movers. A one-way truck rental to move from San Francisco, CA to Austin, TX could have cost upward of $8,000. While we weren’t moving to Austin, we considered renting a truck and moving on our own. U-Haul straight-up said they couldn’t guarantee where I could pick up the truck until the day before the move. Not willing to drive 100 miles potentially to pick up a truck the day of our move, we opted against using U-Haul because of this uncertainty. Instead, we interviewed and got estimates from multiple moving companies, and hired movers that were not only reliable but affordable.
Professor Tip: When demand is high and pricing is against you, it’s more important than ever to get at least three quotes to ensure you aren’t getting taken advantage of by vendors.
The Major Takeaway
The pandemic has fueled a crazy real estate market, where mortgages are cheap and home prices are on the rise. While this has been unexpected during a pandemic, the real estate market is cyclical and it’s important for any potential homebuyers to understand the benefits and challenges of each market.
While in a perfect world, homebuyers would only buy homes when it’s a buyer’s market and they have all the negotiating power, that just isn’t always how life works. We bought a home when the timing was right for our lives and we felt financially capable to do so. Do your research on the market, understand your financial situation, and take this huge step when it feels right for you!
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