Buying a house in competitive markets

[Louise]

My spouse and I have lived in the same house for two decades. Our house is fine. Not quite what we ever wanted, but it's OK. We are thinking about moving to a different kind of house in about 2 or 4 years. Right now our local market is very competitive.  A house we might like will be gone that same day.

I don't know how to buy a house that we might see pop up on the market that we want. We won't have W-2 income in two years. The house we buy will be roughly the same cost as our current home's value, maybe a little more.

We wouldn't want to try to sell our current home until we closed on a new place, but we would probably sell it within 3-6 months. Can we make a offer on a place and then try to get financing (Asset based mortgage? Margin loan? Bridge loan?). When we bought our place years ago, the market wasn't quite as hot as it is now. We made an offer, paid the earnest money and then got financing the next week. Does it still work that way? 

There seem to be a lot more cash offers now and we would want to be as competitive as possible. I'm not sure how that works. Our net worth could support a cash offer, but most of our money is in IRAs and Roths. Do people just have the cash laying around? I think our problem is that we do not know when we would move. The right house has to come up and then we have to be ready to pounce on it. I'm just not sure about the logistics. Do you have to have a perpetual pre-approval letter?

[lutorm]

If you won't have any income, a margin loan seems like a good option. (IIRC MMM used one for this exact purpose.) That would allow you to make a cash offer, since you could just withdraw the cash. I'm not sure about the logistics of making an offer on a house the same day while also doing due diligence, though, I would be very worried about not making a fully informed decision, but maybe that's what contingencies are for (if the seller would allow that in a very hot market is another question.)

[GilesMM]

You could sell your house to get the cash out, then rent (or lease back!) while waiting to pounce with an all-cash offer.

[Louise]

LOL, the renting sounds stressful. I do know someone in our neighborhood who did that, but it did take a while to find a house. I'd prefer to be more settled I think. We have pets and a kid that needs to stay in the area and finish school. Maybe the market will cool in a few years? I did read about the margin loan and just checked some of the rates. They are pretty high, but I need to read more. Maybe there's a reason we've stayed in an OK house all these years...

[Cranky]

If you’re in a competitive market, you need to have your house ready to list when you are ready to look at your next house.

We recently bought in a market where houses are shown for one weekend and one weekend only. Offers need to be in on Monday (and there will be many offers) and one is accepted on Tuesday.

So you have to everything lined up and ready to go. Worst case scenario - you sell your house before you have an offer accepted and you put your stuff in storage and do a short term rental. A good real estate agent would help you navigate, though.

We actually did a private sale - the house never went on the market.

[Dancin'Dog]

We moved a few years ago into a neighborhood that still had a few vacant lots.  Our home was built in 2008.  We really like a lot of things about it, but it's not exactly what we would have chosen if we were building a home.  There's been a few things we've had to replace and repair.  I can't help but envy the neighbors' brand new homes with warranties.  We just didn't want the headaches of building.


Maybe you should consider building.  It seems a bit daunting, but you get to choose everything about it.  I don't know of another way to get exactly what you want.

[Abe]

Trying to break down your questions into a list:

Can we make an offer and then get financing?
- Most sellers won't consider an offer unless there is some pre-approval letter (or proof of being able to pay in cash), unless you give substantially more than asking price. Otherwise, it isn't worth the hassle from the seller's perspective.

Do people just have the cash laying around?
- Depending on where you live, yes. They may not necessarily live in the same area, but a lot of houses are being snapped up by rich people from various locations.

Do you have to have a perpetual pre-approval letter?
- No, but it's hard to get one together just to buy a specific house. Most people just decide "ok, I'm going to buy some house somewhere around here" and get a pre-approval letter at that point.


Having both and sold several houses in the last two decades (always in high-demand areas), it's a bit more frantic and aggravating than it was before. My friend who bought recently did the sell -> rental -> buy method. It was annoying and added costs, but he thought it was worth it in the end.

I think the building idea makes sense in your situation. Land usually isn't as crazy a market. Consider houses that are partially pre-assembled to reduce costs (but not necessarily headaches!). These methods are relatively common in Europe, but are becoming less fringe in the US compared to a decade ago. Depending on where you are building, there can be several builders familiar with various techniques.

[neophyte]

My thought is, who knows what the housing market will do in 2 to 4 years or if you'll decide that you'd really rather live somewhere else?  I'd start saving up in a high yield savings account or similar so that you've got a little more flexibility when the time comes.
 

[Louise]

Trying to break down your questions into a list:

Can we make an offer and then get financing?
- Most sellers won't consider an offer unless there is some pre-approval letter (or proof of being able to pay in cash), unless you give substantially more than asking price. Otherwise, it isn't worth the hassle from the seller's perspective.

Do people just have the cash laying around?
- Depending on where you live, yes. They may not necessarily live in the same area, but a lot of houses are being snapped up by rich people from various locations.

Do you have to have a perpetual pre-approval letter?
- No, but it's hard to get one together just to buy a specific house. Most people just decide "ok, I'm going to buy some house somewhere around here" and get a pre-approval letter at that point.


Having both and sold several houses in the last two decades (always in high-demand areas), it's a bit more frantic and aggravating than it was before. My friend who bought recently did the sell -> rental -> buy method. It was annoying and added costs, but he thought it was worth it in the end.

I guess I suspected as much. I do occasionally see houses come back on the market and it made me wonder if maybe financing fell through or something. The last person I knew who had to sell a house had to coordinate the closings, put their stuff in storage and then stay at a relative's for a little while. That worked out ok, but it was stressful. I also know someone who sold their house in order to buy a new house, but then the new house buy fell through because those sellers couldn't buy their new house for some reason. They were scrambling to find a rental too! I would like to avoid that!

[Louise]

My thought is, who knows what the housing market will do in 2 to 4 years or if you'll decide that you'd really rather live somewhere else?  I'd start saving up in a high yield savings account or similar so that you've got a little more flexibility when the time comes.

We just started buying I bonds a couple years a ago and have some put away in a HYSA. It's kind of hard to turn off the thought of investing though lol.

[slappy]

Buying a house in a competitive market is not for the faint of heart. It's almost like a full time job, based on what some of my friends have dealt with. Seems like the first step would be to decide if you are in fact going to buy a house and then go from there.

[six-car-habit]

 Houses can come back on the market due to financing or disclosure or inspection issues.  Most real estate agents would recommend a home inspector look at the property during the contingency period. Be aware that a home inspector is only liable for the cost of their inspection { at least in my state } if they miss something major and the problem is obvious after you've taken possession.

 The last house we bought had two accepted offers before ours that fell-thru
 1st time-  buyers' financing rejected even though they had an "pre-approval" letter - something had changed in their finances {?}
  2nd time - buyer walked away for unexplained reasons and gave up their deposit.

  We asked for 5K reduction in price + 1 week to check out the neighborhood during the contingency and inspection period - Because you can't change your neighbors once you've bought.

 

 

[Raenia]

I bought a house earlier this year, in a very hot market. To the previous poster that said it's like a full time job - it really is. Booked weekends every weekend, plus emergency time off during the week. Many times a house would list on Mon/Tues and already be contingent by Thurs, before we were able to even see it. We had to be willing to drop everything to go see places, and at the same time be ok with missing good houses if the timing didn't work out.

Pre-approval is important, if you are planning on your offer being contingent on financing. Pre-approval is no guarantee, but without it, your offers won't be taken seriously. You won't have time to get pre-approval after you've decided to make an offer, you are likely to miss the window while waiting. We updated our pre-approval periodically, and if your search goes more than a few months the bank may require a new credit check.

Also be aware that in some markets, buyers are waiving inspection and other contingencies. We were not able to get an inspection before purchasing, every house we offered on had multiple offers and went with buyers willing to waive. Note that if you have waived the inspection contingency, you can often still have an inspection "for information only" but the seller is not obliged to allow it.

[Cranky]

Yes, we were told that inspections were out in our market. And be prepared to offer pretty substantial earnest money.

[Louise]

I think we will probably just stay put for a while. It sounds too much like work, ha. We have a few years yet anyway.