Knoxville home prices are going higher and higher, leaving buyers with several serious questions.
Is it ever OK to break your budget? If you pay over asking price, will the value stick? What makes a winning bid? In the end, is it all worth it?
Each buyer is different, but there are some sure things about buying in Knoxville’s real estate market right now.
There is a housing shortage and high demand, which drives up prices. In fact, the median home sale price in May was $265,000, up 10.6% this year and an increase of 23.3% from 2020, according to the Knoxville Area Association of Realtors.
Homes are selling at record prices and speeds. The Knoxville Area Association of Realtors reports more than 68% of homes sold in May went for list price or above with almost 10% going for $25,000 or more over asking. In the same month, half of the homes sold were under contract in three days or less.
Amid climbing costs and limited leverage, it’s more important than ever to be informed. Laura Slyman, owner of Slyman Real Estate, and Karen George, an agent with Young Marketing Group at Realty Executives, talked to Knox News about how buyers can have the best shot at securing a home in the seller’s market.
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The biggest bid isn’t always the best
Some buyers believe offering well above asking will help them get their foot in the door of a new home. However, Slyman and George agree this approach is becoming increasingly less effective because bids that are too big actually incur more risk to sellers.
A higher offer could fall through if the home is appraised lower than the agreed-on price or when buyers request repairs. Sellers are skipping out on too-good-to-be-true bids.
“Ultimately, when sellers are looking at offers, they’re looking for the least amount of risk,” Slyman said. “What translates the least amount of risk for them is financial security on behalf of the buyer.”
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The best thing buyers can do to avoid breaking their budget actually begins before the house hunt. These three steps can prepare buyers:
- Know your budget beforehand: Talk with your mortgage lender to understand how your much monthly payment could be at different price points. Remember, your comfort zone and buying power often have different boundaries.
- Look at homes below your budget: Slyman and George recommend searching for homes well below what you can spend. For example, if your limit is $265,000, look at homes priced around $250,000 and even lower.
- Set realistic expectations: Researching real estate trends can help set you up for success in Knoxville’s market.
Other ways to make your offer stand out
There are several reasons sellers should be cautious when it comes to big bids, but offers that are too low aren’t appealing, either. So how do you submit an offer that will catch sellers’ attention and not break your budget?
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Slyman and George suggest moving your money around to make sellers feel more secure. Here are four things buyers can do to take their offer from OK to accepted.
- Make a large downpayment: Slyman and George said many sellers would rather avoid the risk of a higher purchase price and settle with someone who can put down a large amount of money upfront.
- Pay more earnest money: An earnest payment is a security deposit paid by a buyer to show they intend to complete the transaction. The money is refundable if contingencies like an appraisal or inspection fail.
- Consider an escalation clause: George encourages her clients to include an escalation clause in their offer. The clause guarantees sellers that a buyer will beat the best offer up to a certain amount.
- Offer to cover the appraisal gap: Slyman said many buyers are bridging the divide between a home’s appraisal and what they’ve agreed to pay. This is becoming more common as appraisals lag behind home costs.
- Agree to a short inspection time: Inspections can take weeks, leaving sellers’ homes off the market in the meantime. Agreeing to a shorter inspection period might be attractive to sellers in this market.
Is breaking your budget worth it?
There are two types of value when it comes to deciding to buy a home over your budget – personal and price.
Personal value is how much moving into a new home means to you. Some buyers are searching under a deadline, such as a baby on the way. Others might want to stop renting. No matter your motivations, buying a new home could be worth the higher price tag based on personal factors.
The other kind of value buyers should consider is home price appreciation. According to the Knoxville Area Association of Realtors, the city has seen average annual price growth of 9.6% in the last 5 years, meaning a median-priced home purchased 5 years ago has earned $104,152 in equity gains on average. Slyman and George said this statistic isn’t slowing down.
“No one ever feels good about paying asking price or paying more than the purchase price. However, it doesn’t mean the property is not worth it,” George told Knox News.
“I’d say it makes sense to break your budget if you are finding a house that is of such value. If your loan officer believes that you can, in fact, afford it, I would advise you to go ahead with the purchase, especially if the house checks off all of the boxes for your family’s needs and it’s in an area that’s increasing in value. After all, real estate is an investment.”