New homebuyers prepare for a ‘hot’ housing market this summer

Temperatures and "for sale" signs are rising along the Lakeshore, especially across Ottawa, Allegan, and Muskegon neighborhoods. West Michigan is one of the country's hottest housing markets, and it's no mystery why.

Grand Rapids was recently named the best place in America to raise a family, and a new study from SmartAsset identified the healthiest housing markets in Michigan, with Holland and Grand Haven cracking the top 10.

But what does that mean for first-time homebuyers looking to make offers on a property that could change their lives?

"Real estate is an unusual commodity, and you're buying it for you," says Dale Zahn, CEO of West Michigan Lakeshore Association of Realtors, who has 31 years of association experience and 17 years as a practicing agent.

Zahn describes the homebuying transaction as a "real estate salad," with multiple ingredients to determine how to find and buy a home. These ingredients include inventory, diversity of housing, location, the offer, and the people involved.

"It's springtime, people are out there in abundance, they're sometimes fearful, but they have to have their eyes wide open, they have to be patient and expect the unexpected," Zahn says. "And you have to be ready to move."

Area’s popularity pushes up demand

The condition of the West Michigan real estate market points toward the broader challenge of the housing market across the country. In locations where more people want to put down roots, demand for long-term housing elevates. In areas like Holland, Grand Haven, and Muskegon, one of the main drivers of demand is water.

"Proximity to Lake Michigan is awesome and super unique," says Jon Ornee, an @HomeRealty agent who's gained attention from his innovative listing videos on social media. "To be able to find affordable housing within a few miles of a world-class beach is awesome and is not something you can find anywhere else in the country or the world."

To meet that demand, homebuilders, developers, and municipalities must increase the housing supply. On the Lakeshore, this typically means single-family homes, compared to apartment complexes and high-rises in cities.

The problem – the supply of housing trails the demand.

The average home takes a minimum of six to eight months to build, and the effects of the housing collapse 14 years ago, paired with the supply chain challenges of building new homes, put even more demand on the current home stock.

"New construction took a serious dip dating all the way back to the recession of 2008," Ornee says. And builders are still trying to catch up. The COVID-19 pandemic has exacerbated this because of supply chain delays and the new standard of remote working. As a result, Ornee says, more people are moving from out of state to the Lakeshore or moving back home from Chicago, California, and Texas.

"West Michigan on the national level is still a bargain," Ornee says.

Fewer houses on the market

According to Housing Next's 2021 Ottawa County Housing Needs Assessment Update report, the population of Ottawa County is growing at double-digit rates, outpacing the rest of the state. At the same time, the study says, 178 homes were for sale in 2021 compared to 770 in 2018.

That's a 76.9% decline in the available housing stock, forcing median home prices to increase by 42.8% in the same period.

The situation in West Michigan reflects a nationwide trend. A recent study by the National Association of Realtors said there are 411,000 fewer homes for sale available to a household earning $75,000 to $100,000 compared to pre-pandemic.
What does this mean for individuals or families looking to purchase their first home along the Lakeshore? Is it better to stay put until the market cools off?

"For every transaction that is made, there's one happy buyer, one or two happy realtors, and a whole lot of unhappy people," Zahn says. He's heard of up to 40 offers on a single property along the Lakeshore. Ornee is seeing the same competition with his clients.

Steps for would-be buyers

So, what does it take to win? Zahn and Ornee have tactics that buyers should learn before spending sleepless nights scrolling on Zillow.

First, Zahn says, buyers need to be patient.

"What are your expectations?" Zahn says. "The seller makes the decision on what offer is the best, and it's not always price."

Sellers are looking for serious buyers, so getting preapproved is now the standard. Zahn says getting preapproved by a reputable lender that is local or has name recognition is an additional plus. Writing a letter to the seller is valuable, but money still talks. Buyers should submit a substantial earnest money deposit, a sum of cash put down on your home, which will tell the seller you're interested in their home.

Because of the inflated market, buyers are making offers higher than the home’s appraised value. If the offer were over the appraisal in traditional markets, the seller and buyer would meet in the middle during negotiations. But now, cash offers are winning over conventional buying processes. To compete with cash offers, Ornee says homebuyers can use an appraisal gap guarantee, which is a commitment from the buyer to cover x number of dollars if the home is worth less than their offer.

"More than anything, it's a sense of insurance and assurance for the seller," Ornee says.

Skipping inspections is risky tactic

The horror stories of bidding wars, cash payments, and off-market transactions are intimidating, but there's even a more challenging situation if your offer goes through.

"Most buyers are pretty overwhelmed," says Danny Geurink, owner of Ink Home Services and certified master inspector. "A lot of people have the feeling of now or never."

Geurink says he's seeing a high level of waived inspections, which is a significant risk – you don’t want to discover a leaky roof after moving in – but is another attractive ingredient in a competitive offer.

There are options other than waiving inspections and crossing your fingers that the sewer line doesn't back up your second week in the home. During negotiations, "pass/fail" or "informational only" inspections give buyers more clarity on a property and the option to back out of a deal. Either way, don't bid blind.

"If you're going to waive inspections on something of that magnitude, take somebody along to the showing that's an expert in what to look for," Zahn says.

Geurink says homebuyers should be aware of historical maintenance on the home, whether they wave inspections or not. For example, look for the sticker on the furnace that shows the last tune-up date or pull out the furnace filter to see if it's regularly changed.

The seller's disclosure is also an indicator of the home's history. If you're waiving inspections, the disclosure is the only legally binding document to indicate whether the seller, knowingly or unknowingly, has skeletons in the walls. Geurink advises saving additional cash for major repairs, like plumbing or roof fixes, within the first six months of moving in.

"It's a gamble," Geurink says about waiving inspections."You could end up on the right side, or you could end up losing."

Work with a pro

How can new homebuyers face these challenges?

Zahn believes that working with an experienced real estate professional that you can trust will help guide you through the homebuying process. In addition, governmental resources from the Michigan State Housing Development Authority (MSHDA) and local municipalities like the Housing Assessment and Resource Agency (HARA) can also set up new homebuyers for success in the competitive market.

Above all, homebuyers need to be prepared. That starts with knowing their maximum offer budget, getting pre-approved, and freeing up personal schedules because the time between showings and closings can be as short as a weekend.

"Don't be discouraged," Ornee says. "The market is nuanced, but it's not an insurmountable thing."

Read more articles by Luke Ferris.