How To Navigate Buying a Home in a Seller's Market
Anyone working in or close to the real estate market will likely tell you that what we’ve been experiencing lately is definitely a seller’s market. There were a few macro-economic factors that played into this. For one, interest rates were hovering at a historic low of below 3% while inventory for available homes was fairly limited due to less people wanting to open up their homes to viewers in fear of their health safety as well as construction being hindered by labor disruptions and spikes in material costs such as lumber. Although the pandemic has been largely detrimental to the world-wide economy those who did not lose their jobs during the lock-downs may actually have felt they were more prepared than ever to buy a home and after being cooped up for several months on end may have been eager to change their surroundings.
It’s possible that this housing boom may actually soon be coming to an end based on some recent figures but whether it’s a certainty to say so is still yet to be determined. New home sales in June have dropped to the lowest levels since the pandemic started. The year-long run on both new and existing homes have dramatically increased housing prices which could be the cause for such low sales volumes but again whether that means the housing market is poised to flip downward is still yet to be seen. If you’re looking to buy a home it may still be best for now to assume you’re dealing with a seller’s market.
We're sharing some tips that can help you better navigate a hot real estate market as a buyer - and because the real-estate market works in cycles, these guidelines on how to navigate such markets will always be relevant. Just make sure to bookmark this post for future reference.
1. Take action quickly
When you’re a buyer in a seller’s market, time is of the essence. A seller’s market basically means that demand far outweighs supply and therefore homes can very quickly come off the market. Therefore if you see a listing that you like don’t wait until the next free weekend or even the end of the week to visit the home. Go as soon as you can, even the night of finding that listing if that’s possible.
Now we’re not saying you should go and make an immediate offer on every house you see, but rather that you should gather as much information for you to do your due diligence so that you can make an educated decision as soon as possible. If you don’t, there’s likely someone else that will. Understand that you’re working in a highly competitive environment and take action accordingly.
2. Make clean and clear offers
Once you’ve gone through your process of making sure you do want to proceed with making an offer on a house, make sure the offer you submit is as clear cut and free of contingencies as possible. This will help you stand out as a preferable offer to take from the seller’s side.
Why? Offers with fewer contingencies offer less opportunities for the buyer to back out of the deal. If you’re dealing with a seller that values certainty and efficiency over a marginal increase in sale price, that could be the difference between them accepting your offer or going with someone else.
3. Set the right expectations
As we mentioned above, homes move very quickly in a seller’s market which means that the inventory you have to look through at any given time is going to be fairly limited. With a limited inventory the likelihood of you finding a home that has the perfect layout and amenities is going to be very slim.
You need to walk into this home buying process with the understanding that you’re not likely going to find the home schematic that perfectly fits the home of your dreams. As such you should decide early on what are the need to haves vs the nice to haves in a home. This can help you quickly widdle down your list of options and minimize the amount of time and effort you waste looking at homes that were never going to work out anyways, not to mention all the headache you could be avoiding as well.
4. Be disciplined with your budget
When the real estate market is hot, the chances of you being the only person to bid on a house are near zero. There’s almost always going to be competition which can kick start a bidding war, and once these get underway it’s very easy for things to get out of hand.
Our advice is to set a hard limit on the house price you can or are willing to afford and never go above that amount. Knowing that you’ll likely have to settle at a price higher than you initially go in with, you may even want to look at homes that are lower than the price you set to allow you some buffer room for that negotiation when it inevitably come, otherwise you may end up in a situation where you may have won the bidding war but are now facing a whole new chapter of financial struggle in your life.
5. Offer more earnest money
Earnest money is similar to a deposit that you can provide alongside your offer on a home to indicate to the seller that you’re serious about the deal. Of course if the deal doesn’t go through you’ll get your money back but it’s a great way to help your offer stand out from the competition that isn’t willing to get the extra mile.
If it’s an option for you to make a full cash offer, that may actually be the best case scenario as a buyer. Cash offers mean there’s less risk for the seller. They don’t need to worry about financial contingencies and can have more certainty that the deal will not fall through at the last minute. Cash offers can expedite the entire sales process and get rid of a few potential headaches making the offer much more appealing to the seller.
6. Find an experienced realtor
Because things move so quickly in a seller’s market, working with an experienced realtor will probably get you better results than you can get on your own. Experienced realtors will be well tuned into the market and possibly have insights on the realistic availability of a home. Looking at a listing online for example may make it seem like a home is available when really the seller could already be nearing a deal with a potential buyer. It’s these types of insights a realtor may be able to provide to help save you time and heartache. Even more this is how they make their living and so they don’t want to be wasting their time either.
Also since they help buy and sell homes for a living they’ll be able to help you very quickly find out if there’s going to be a dealbreaker on any given house, even going into aspects of a home you may not have thought to consider before but now that you’re hearing about it can be quite an important factor in your decision making such as proximity to schools and public resources.
A really good realtor may even be able to show you listings that haven’t been made public yet because they know the buyer directly, minimizing the competition you have to deal with. This however is something that is more likely to happen by chance than it is a certainty but the possibility is always there.
7. Be patient
Okay so this might be a little contradictory to the first point we made about acting quickly, but again we meant the first piece of advice to simply mean that you need to very quickly gather information in order to make well-informed decisions. Once you’ve gone through the due diligence of figuring out what you can afford, what houses fit within that budget range and crafted the best offers you can for those houses the best thing for you to do is wait.
It’s possible you may get lucky by very quickly finding and purchasing the home of your dreams but in a seller’s market paradigm it’s much more likely that things will not work out for quite a while before they do. As more and more homes you’ve looked at and gotten invested in come off the market going to other buyers, you may start to get antsy and be willing to make rash decisions.
However this is exactly what you don’t want to do. As we mentioned earlier if you make rash decisions such as bidding for a house that’s above what you can afford, you’ll have to deal with the financial repercussions of being blinded by your overeagerness. Always remember that in the long run it’s going to be better off for you if you wait to reasonably buy a home you can love than it is to buy a home now that you may come to regret later.
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