13 Things Buyers Need To Know In A Seller's Market
Here in Northern Utah, it is a seller's market right now. The inventory of homes for sale is low. This housing market leaves many home buyers waiting and watching for the right home to pop up on the market. When that home does come on the market, it is turning into a multiple offer frenzy. When this happens, it leaves many home buyers discouraged that they didn't win the bidding war. Even more often, the home buyer didn't get a chance to write the offer because they are not prepared to make an offer. If you want to ensure that you get the home you want, you have to prepare. I have put together thirteen things you should know in a seller's market to help you get your offer accepted.
What Is A Seller's Market, Anyway?
There are three types of markets in real estate: a buyer's market, seller's market, and neutral market. A seller's market in real estate is when there is a higher demand for homes than the supply of homes for sale. When there is a low inventory of homes for sale, you will find several buyers competing to buy the same property, which drives up the price. This seller's market means that buyers will have to spend more to get what they want.
Let's dive into some things buyers should take into consideration when buying in a seller's market.
1. Get A Mortgage Pre-Approval, Not Just A Pre-Qualification
Before you start searching for a home, getting a mortgage pre-qualification is a must. A pre-approval is an even wiser choice. Not just in a seller's market. There is a difference between a pre-qualification vs. a pre-approval. With a pre-approval, you have given your lender everything they need to ensure that you qualify for a loan and for the amount you have requested. In a seller's market, you want to make sure that you have a flexible lender. If you decide to write up an offer at 7:00 pm, you or your real estate agent will need to get in touch with them to get the pre-approval letter for the price you want to offer. Submitting a pre-approval letter with your offer can help. It lets the home seller know you have been actively working to obtain a home loan.
2. Work With A Smart Realtor® (As You Should In Any Home Buying & Selling Situation)
In a seller's market, you need to know as much as possible when you sit down to write up an offer to the seller. Choosing the right agent to represent you is a must. When it is a seller's market, your real estate agent will know to ask the seller's agent what kind of activity there has been on the home. Then, when you go to the appointment to see the home, you have an idea of a potential multiple offer situation. If you are absolutely in love with the house and want to make an offer, your real estate agent should be able to guide you through making the best decisions for your submission. You do not want to make a low-ball offer on a hot-home priced right in a seller's market.
3. Do Your Research Ahead Of Time
If you know the type of home you are looking for or have specific neighborhoods you would like to move to, it's a good idea to do your research ahead of time. Your real estate agent can work with you on finding the homes that have sold recently in the areas you are looking in. This information will give you a head start on knowing what homes are selling for in that area and guide you to what price to offer. Do a drive-by at different times of the day to make sure the neighborhoods you like are what you want. A quiet street during the day may be the party place at night.
4. Separate Your Needs From Your Wants
When buying in a seller's market, you will find that you may have to forego some of your wants and focus on just the needs. You may have to compromise on the location, amenities, or condition of the home. Have a checklist of your needs, and refer to it whenever a new home comes on the market. If you can check off all the essentials, make the appointment to see the house as soon as possible.
5. Stay Within Your Budget
It is not the time to think you can make low-ball offers and get what you want in a seller's market. Don't look at homes out of your price range in hopes that the seller will drop their price to your budget price. When homes are selling fast, you have to expect that you will probably need to offer full-price. You may even need to go above the asking price when there is a bidding war.
6. Be Flexible On Timing
If you can find out why the seller is moving, it can help you determine what kind of closing date to offer. For example, there may be a seller that needs to move in a hurry. The sooner you can close, the sooner the seller can move on. Another situation may be the seller needs extra time to move out. For example, they might be waiting on their new construction home to finish. Or the house that they have agreed to purchase is taking longer to close. Being flexible will give you bonus points if other buyers are submitting offers. Another option would be to close on the home but allow the sellers to rent the home back from you for a few weeks or a month.
7. Offer More Cash Upfront
When making an offer, earnest money almost always comes into play. In a seller's market, offering more earnest money can show the seller the height of your interest. It may also turn out that your earnest money deposit could be the deciding factor. With the multiple offers a seller could receive in a seller's market, that deposit might be the only difference. If your earnest money is more than your competition, you have a higher chance of getting your offer accepted. Are you making a large down payment? Make sure that the seller knows that. The more cash you are working with, the stronger you appear.
8. Get Personal With The Home Seller
If you want to win over the home seller, include some emotion. Write up a personal letter to the seller to include with your offer. Flatter the seller by complimenting them on how well they have kept their yard maintained. Or that they have an eye for a color choice and decorating. Let the sellers know how much you love the home and why you can see yourself living there. Be sure to be friendly, and don't whine.
9. Look For The Potential In Every Home
Although you may not change a home's layout, you can change many other things about the house. In a seller's market, the homes that are priced right and in mint condition will go quickly. However, other homes are sitting on the market, waiting for the right home buyer to come along. They may be sitting there due to being over-priced or sitting there because they look drab. As a home buyer, look for the potential and consider a fixer-upper. You can paint walls, add new flooring, change out fixtures, and change the landscaping. Many homeowners are even painting the old cabinets to get an updated new look. If you can see the potential that others don't, then chances are, you won't have to bid against other buyers.
10. Keep In Mind There Is A Time For Due Diligence
Many homebuyers, especially first-time home buyers, are sometimes hesitant to make an offer on a home. They think they need to know everything about the home before making the offer. However, if when you walk through and love it, don't hesitate to make that offer. After the home seller and you come to terms, you have a due diligence period. Due diligence is when you can do a home inspection, check utility costs, boundaries, square feet, and many other things. The due diligence period is typically around two weeks, starting from when you write the offer. If you find there is something that concerns you, you can cancel the contract. As long as you cancel the contract before the due diligence deadline, you will get your earnest money back.
11. Don't Buy A House You Don't Love
Just because it has been difficult to win the bidding war on a home or two in a seller's market doesn't mean that you should settle. Although you are willing to compromise on those wants you hoped for, that doesn't mean that you should decide on a home you don't like. Buying a home is a big deal. Unless you have put a big chunk of a down payment on the house, you may have to live there for a time before you have built some equity up. When doing 100% financing, you most likely will have borrowed up to the max of the home's value. Remember, there are costs to selling your home.
12. Get Creative In A Seller's Market
If you are having a difficult time finding a home, you love then get creative. Your real estate agent can help you with this. Be on the lookout for homes listed for sale by the owner. I have been working with quite a few for sale by owners due to a lack of inventory on the MLS. You may have to drive the streets, but they also list their homes for sale on local websites and national websites like Zillow. Some also still use the good 'ole newspaper to advertise. But, you don't have to stop there. Your real estate agent can search expired listings and determine if the owner is still interested in selling if the right buyer came along. Just remember, your real estate agent is there to represent you. Let them do the calling and talking for you. Otherwise, you may compromise your buying power.
13. Decide Whether Buying A Home In A Seller's Market Is Worth The Stress
Indeed, buying a home in any market can be stressful. But being on the buyer side of the seller's market can add to the stress immensely. You may have to write many offers before yours is accepted during a seller's market. If you are easily depressed, you might want to rent a bit longer until more homes become available.
Buying in a seller's market is not for everyone. If you are looking to get a "deal," it may not be the right time for you to buy. But, if you want to get in a home now, you can make it happen using the tips above. Just keep in mind, you will most likely be paying top dollar for the home you choose unless you can find the potential in the homes that no one seems to be putting offers on. As mentioned above, be sure to select a top real estate agent to help you through the home buying process. After all, it doesn't cost the home buyer to be represented by a real estate agent.
Additional Home Buying Resources From Other Top Real Estate Bloggers
Moving Checklist INFOGRAPHIC: 10 Steps to a SHOCKINGLY SIMPLE Move! by Ryan Fitzgerald of Raleigh Realty
How to Buy A House from Start to Finish by Jeff Knox of Knox & Associates
20 Things To Do Before Buying A House by Bill Gassett of Maximum Real Estate Exposure
7 Reasons Why Your Offer To Purchase A House Was Rejected by Xavier De Buck of Northcliff Real Estate
20 Important Morgage Terms To Know by Paul Sian of HER Realtors
10 FHA Guidelines EVERY Home Buyer Should Know by Luke Skar of Inlanta Mortgage