When sellers rule the market buying a home really isn’t as difficult as everyone makes it out to be………..unless it’s under priced and/or your dream home (and everyone else’s).
While under the “reign” of ruthless sellers, don’t expect to get your way too often.
A seller’s market simply put:
buyers > sellers = seller has more leverage
Time is neither friend nor foe in this part of the market cycle, so unless you’re willing to wait a couple years, you’re “let’s hold on a month for the market to turn”, will be in vain.
So how do I buy without being taken advantage of?
How do I buy a home and not settle for less?
Would it be better if I waited to buy?
Just a couple of the top frequently asked questions from home buyers searching in a seller’s market.
First step:
Decide whether you have the courage to stand up against the oppression of the many kingdoms……not really, unless you’re in a roller coaster city where prices soar up and crash down, there’s not much to worry about. Be prepared to give sellers close to their asking price (always negotiate) and there’s not much to worry about. Seller’s will pick and choose to dance with the prettiest offer, meaning be quick and/or be attractive.
Second step:
Brush up on the (seller’s) market whether you have an agent or not.
Key topics are:
Market Absorption Rate
Interest Rates
Current Demand
Prices
The market absorption rate relates to the current housing inventory. This rate shows at what degree the buyer’s or seller’s market currently is and if calculated correctly, what it’s shifting to. A good agent should provide this to you. The calculation provides the time it will take to sell all existing homes in a specific location. Less time = seller’s market, more = buyer’s.
Multiple offers are common in a seller’s market, and occasionally over asking price offers. Expecting a healthy discount isn’t going to fly very often here. Be prepared for a full price offer and see anything less as a bonus. If looking to low-ball offers, you’ll be disappointed and most likely need to wait a market cycle in order to have any success.
If the buyer is searching with a very specific criteria (stream running through the backyard), it may take more time than expected to find that “just right” home and even then, you’ll end up paying for it.
Third step:
Understand timing. Each season brings different benefits and challenges.
Spring: Variety, 40% of housing inventory comes during this time, so you’ll have more to choose from. As long as you’re quick, prepared, and precise in your offers, you should navigate the spring season well. Be sure you and your agent are on top of your game.
Summer: Carrying over the frenzy from the spring. School is out for most and a rush on both sides ensue before the coming school year.
Fall: Things are starting to slow down and sellers may be willing to rush a sale before winter hits or retreat til spring. Buyers may also be desperate to find something before the holidays and winter come. Buyers are taken more serious as well and are more apt to find a weary seller that has had their house on the market since spring.
Winter: Fewer buyers to compete against as they’re not wanting to move during cold / holidays. This as a result is met with fewer sellers being ready or willing to sell during this time. An advantage is quicker loan processing as there are fewer loans in the lender’s queue. Another aspect is while the weather is at it’s harshest, it helps home inspections to determine any maintenance that needs to be dealt with, alternatively it also potentially hides other issues under the snow, etc.
Behold, more tips for home buyers in a sellers market:
How To Be Prepared To Buy My Home In A Seller’s Market
Once the decision has been made and have accepted the challenges that await, the battle begins.
What I need to do before looking at homes:
Get pre-approved! I can’t stress this enough as it sets the bar for your search and gives you an idea of what you realistically can afford. Many are intimidated by the application process and being REJECTED. If there are issues, at least now you know what you need to do to repair them. Usually I see buyers worry about small blemishes that end up not affecting them at all.
Don’t do what your favorite HGTV show does and walk through a bunch of homes you can’t afford. Sometimes you can look at homes 10k above your limit, just NOT in a seller’s market. You should start to get a good idea of the quality tier in your local area. Every local market is different. One $250,000 home outside the city is a mansion compared to the $250,000 distressed shack downtown, make sure you have a realistic vision of your end goal.
Having your financing ready to go gives the buyer a significant advantage over the competition, half of the buyers I see don’t have their financing ready. Make sure you submit your proof of financing with your initial purchase offer. The seller / seller’s agent will give you more attention and better response if you’ve done this, rather than feeling you flung a thoughtless offer at them resulting in a brush off, especially in multiple offer situations. Knowing the buyer is serious, allows for more serious negotiations as well.
Don’t hesitate! Inventory is low, competition is high. If you’re in the market for that “perfect” home, you’ll need to be ready to pounce at any given time. Very often, desirable homes will have multiple offers within the first 12-24 hours of hitting the market. In this atmosphere, you may need to consider submitting your offer based on pictures and a drive-by. You’ll have ample time to inspect and do your due diligence to make sure you truly want to commit.
Be flexible! A “weekend shopper” has a huge disadvantage in a seller’s market. Some can’t adjust due to their work and family schedules, however they can adapt. Like mentioned before, buyers can send a trusted friend or family member or even their agent to go view the home. If it passes the test, make an offer! Some savvy buyers (especially investors) are comfortable making offers sight-unseen to get the ball rolling, when you get time they’ll do their initial walk-through before they have to commit further. Often they’ll pass, cancel the offer based on due diligence, and be refunded their earnest money deposit, leaving unharmed. Not so scary is it?
Another common situation is “half n half” shopping. One of the buyers is out looking while needing final approval from the other family member, requiring multiple days and at least two walk-throughs. Often allowing another buyer to come in and “steal the deal,” leaving the other party stressed and heartbroken. Again, they may not be able to adjust their schedule, but they can adapt their strategy…
If the buyer(s) insists on their offer being contingent on a walk-through, they must make themselves available. This means using their lunch break or viewing after work or early morning. This can be a little more difficult for the agent to accommodate however.
Choose a Dynamic Buyers Agent! This step is even more crucial in a seller’s market. We’ve already foreseen some advantages to an agent that can navigate and adapt to a buyers viewing schedule and guiding the buyer through the financing process. See the different kinds of Realtors and how to interview them. Being unable to show homes based on the buyers needs because they don’t work nights or weekends is unacceptable (x10) in a seller’s market. When least expected and not looking, the home you were looking for may slip away and fulfill someone else’s dreams.
What I need to do while looking at homes:
Consider your Contingencies
When a buyer sends over a standard 6+ page offer, and fills it with 16 contingencies, the seller doesn’t feel too secure in going down that road. There’s way too many ways for the buyer to leap out and leave the seller stranded with nothing to show for it 1-3 months in the future. Compare this to an offer with 3 main contingencies within the first 2-3 weeks. The seller will be far more comfortable if they know what the outcome will be sooner in the sales process. Of course the deal can fall apart later, however it will be subject to earnest money forfeit or additional damages. Here are more reasons why offers are rejected.
In a seller’s market, a seller may avoid an offer that has a sale and transfer of title contingency. This is common as it’s difficult to transition a family from one permanent home to another, however in this kind of a market, there are going to be others who don’t require this additional dilemma. There is a way for a seller to accept this offer with a contingency of their own.
The home inspection is another important contingency that can be waived by the buyer in their offer. This can definitely make an offer more attractive as long as the buyer is comfortable with it. The pressure and risk shifts from the seller to the buyer so be convinced and certain.
Consider your Exit Strategies
Investors need to have more than 1 way out of a property. Whether it’s to flip, rent, lease option, seller finance. When they don’t, markets make them pay for their foolishness.
For a traditional middle class buyer, this is usually the furthest thing from their minds, after all, their jobs are “secure.” Be sure you have a back up plan. Whether it’s buying a home with a mother-in-law apartment or starting off in a comfortable equity position if the need arises to sell or rent in a down market. Don’t let it stress, just buy knowing what you’d do in a worst-case scenario.
What to do once my offer to purchase is accepted:
Execute
Double and triple check everything is going according to your timeline and deadlines. A lot of deals die when a mistake is made and an extension is needed, giving a seller an option to stall, renegotiate, or change their mind for any reason.
Renegotiation
Often, after an inspection, things are not as expected. So an addendum (alteration of offer) is made before the due diligence deadline expires. Prior to this step, make sure you know answers to the following:
- Why are they selling?
- Are they including or excluding appliances or furniture? Why?
- What is their preferred timeline?
- Do they have a home they are buying?
- Could they use additional tax write-offs?
The answers to these questions are often safeguarded by the “King’s Guard” (their agent) and may not get answered. Even so, find out as much as you can about their situation so that you can be strategic in your addendum to the purchase contract without rocking the boat. In a seller’s market, their boat will be a lot more sensitive, so be cautious.
Final Thoughts
Buying a home during a seller’s market is not for the casual buyer or real estate agent. Make sure you and your Realtor are up to the task and have an agreed on game plan for battling against The Throne. The power will eventually shift, but is very unpredictable. The only known is today’s market, today’s interest rate, and today’s dreams.
Now go forth with courage and sound mind and ready your troops. Contact Me to allow me to show you my repertoire of secret weapons to battle in your favor.