How to buy a home in Charlotte’s wild real estate market

Yup, this market is wild. Wondering how it works on the other side of the deal? The pros at Redbud broke down how to sell your home right now. Pro tip: If you work with Redbud, they’re offering complimentary photos and a staging consultation.

This guide breaks down what’s going on in the real estate market, home-buying costs and some common questions about Charlotte real estate.

The state of play: In April, more homes hit the market compared to March, with 5,711 new listings. That number is up 32.5% from April 2020 — a good sign that sellers are feeling more confident this spring, compared to when the pandemic first started.

• Those new listings, however, are selling twice as fast as last year. Despite those new listings, supply can’t keep up with demand, and overall inventory hasn’t improved.
• Median home price was up 14.5% to $315,000.
• The average home sales price up 16.4% to $377,643.

Chart: Axios Visuals, Data: Canopy MLS

Chart: Axios Visuals, Data: Canopy MLS

Where the market’s going

Looking forward: No one can say with 100% certainty where the market is headed. But even the most conservative experts are hopeful prices will cool down a bit and inventory will pick up throughout 2021.

David Hoffman, owner of DHG Group, told us the market would start to cool months ago. He’s continued to see signs the market is changing. Two months ago, for example, almost every home had a bidding war. Now, if the house doesn’t have all the updates or is on a busy road, for example, buyers are starting to get a little pickier.

“In the next two months, expect more for sale signs and more sellers deciding to rent,” Hoffman said.

• Why more renting? Some buyers have been priced out of buying right now and some, along with those sellers who capitalized on the current market, are waiting until inventory improves.

Of note: None of the experts I’ve talked to over the last several months think the market will tank — it’ll still be hot — but Hoffman said we’re due for a slight correction.

• Let’s say a house was $300K 5-10 years ago, and it recently sold for $600K. If the seller would have waited a year or so, the house might go for $500K, Hoffman said.

Yes, but: It will likely take several months for these small, but meaningful, shifts reflect in the monthly data.

But, but, but: A balanced market for buyers and sellers is around 6 months inventory. And for scales to be tipped in buyers’ favor, we’d need around 7-8 months.

• Buyers could have more options, though. And prices likely won’t continue to rise quite as exponentially as they have over the last year or so.

Getting started

If you’re thinking of selling, Charlotte real estate experts say now’s the time. And if you’re buying, here are a few things to consider before starting your search.

(1) Know your why + priorities: Buying a house is as much an emotional decision as it is a financial one. Think about what’s important to you, what you’re willing to compromise on and why ownership matters to you. Also consider how long you plan to be in the house.

• If we’re at a peak now, the value of your home might fluctuate a bit over the next few years. But generally, the longer you stay, the larger your profit will be when you resell.

(2) Understand what kind of market you’re entering: We’ve got you covered here. You don’t have get too in the weeds but knowing Charlotte’s market is tight and competitive will help manage your expectations. Homes are still receiving multiple offers, so finding the right one might take a while.

(3) Get pre-approved: Your mortgage lender will help you figure out how much house you can buy. And having that pre-approval will signal to sellers that you’re ready to buy and have the money to do it.

• Rebecca Richardson, a senior mortgage consultant at Wyndham Capital Mortgage, recommends doing this anywhere between a month and 12 months before you hope to buy. The more runway you have, the more opportunity you have to make sure you’re in the strongest position, she said.

• If you’re curious about what you can afford, Wyndham has a couple of calculators on their site that can help give you an idea of how your monthly payments might look like and how much you might qualify for. I like this one.

Cost

Down payment: This amount is usually 3-5% of the price of the house, at a minimum. Your due diligence and earnest money are included in that amount.

Due diligence: With a due diligence fee, you’re essentially paying the seller to take the home off the market, says Jeff Clay, a first-time-home-buyer specialist and owner of JClay Realty Group.

This money is due shortly after your offer is accepted. You have 21 days to back out for any reason, but you will not get this money back. People are putting forth at least 1% to make an offer super competitive, but multiple agents told me that still isn’t enough to secure the winning bid in some cases.

• Nakai Richardson owner of Nakai & Co says due diligence is normally somewhere between $500 and 1% of the home price. But she’s seen people offer $2,000+ in due diligence on a $300,000 house and still lose out (mostly to all-cash buyers).

Earnest money: Known as a “good faith deposit,” it’s typically around 1% of the home price, Clay explains. It goes into an escrow account held by an attorney, and once the deal goes through, it will be transferred to the down payment. If the deal falls through for any reason, you get this money back.

• Clay says in a more balanced market, buyers typically put up more earnest money than due diligence but that’s not the case in our current market for many clients.

Escrow: This is an account, held by an attorney, that you’ll open when your offer is accepted, Clay said. It’s where your earnest money will live until that money is distributed to the right players.

• This account closes upon closing, but your mortgage company may require you to open a second escrow account (after closing).
• In addition to principle and interest on a home loan, your mortgage company also pays property taxes and homeowners insurance, drawn from the escrow account. The account acts as a cushion to make sure there’s enough to cover those costs.

Closing costs and other fees: Rebecca Richardson said to budget 2-3% of the home price for closing costs and other fees (lender costs, appraisal, attorney fees, setting up escrow, etc.). Costs vary but budgeting conservatively will ensure there are no negative surprises.

Example: Let’s say you’re buying a $300K home and planned to put down 3% ($9,000). If you put up $3K in due diligence and $3K in earnest money, you’d owe another $3K for the downpayment. If closing costs are 2%, you’d owe an additional $6,000.

• So, with 3% down, 2% closing costs and other fees, you’d need $15,000 up front on a $300,000 home.



Steps (once you find *the one*)

Once you think you found the one, your realtor will help write in an offer, outlining your terms. If it is accepted, you’ll get an inspection (which determines the home’s condition) followed by an appraisal (which determines its value).

Of note: Sometimes, the appraiser says the house is worth less than what you agreed to pay. You can’t get a loan for more than the home is worth. So, in the event that happens, there are two options:

1. The seller comes down on price to meet the appraisal, or comes down closer to it.
2. The buyers has to cover the difference in cash.

After your offer’s been accepted, you’ll pay due diligence and open an escrow account. When you close, you’ll pay the remainder of fees, the title will be transferred to your name, and you’ll do a final walk through.

Q&A

(1) Should I try to time the market?

Not necessarily. You have to know when the time is right for you (are you prepared to offer over asking or do you need a few more months to save, for example).

Plus, even if inventory improves and home prices cool, mortgage rates likely won’t dip any lower. If housing prices go down and mortgage rates increase, your monthly payment on a $400,000 house could look very similar or possibly be higher than a house priced at $500,000 now.

(2) Should I offer over asking?

There are two questions to ask yourself here.

• What’s this house worth to me? If the appraisal comes back lower than your offer, are you willing and able to make up that difference?
• How long will we be in this house? If you’re buying at a peak now but you plan to be in the house long-term (5-10+ years), it’s still likely a good investment. If you plan to be in the house for less than five years and the market isn’t as hot as it is now, would you be willing to rent it out? Would you be OK with smaller profit margins? Should you consider a condo or townhouse for now to get a better deal?

(3) How do I make my offer competitive?

Nakai Richardson says many of her clients who are looking in the $300,000 range, are going $10,000-$25,000 over asking with thousands in due diligence. Luxury buyers are going through the same thing — offering more than asking and putting a lot down.

• A lot of times, you’re competing with investors or transplants from more expensive cities with the means to pay in cash.
• You can also look into platforms like Orchard and Opendoor that help you buy in cash.

(4) What if I’m not sure I qualify for a mortgage?

Assess your financial situation: look at Credit Karma or other free soft credit check resources, know what you have in savings and know your debts. Then talk to a lender.

• They’ll be able to tell you what your next steps should be, whether its filling out an application or checking out some financial resources to improve your credit score.

Ready to start your Charlotte house hunt?

(1) Find your ideal neighborhood in the city of Charlotte or in one of its surrounding suburbs.

(2) Check out our hot homes roundups. We feature new homes every week.

Have more real estate questions? Shoot me an email, [email protected].