A home seller’s market is simply a matter of economics. Inventory is low and demand is high, leading to some homes being on the market for only hours with competitive bidding.
The housing industry has been keeping a keen eye on President Joe Biden’s proposed $15,000 homebuyer tax credit for first-time homebuyers. But just how many people would actually benefit from it?
According to a report from Zillow, about 9.3 million renter households in the U.S. (27.4%) would spend less than a third of their income on the monthly payment for the median home sold in their metro in 2020 if they received the full tax credit. That is, of course, if certain stars align: think a 3.5% down payment on a 30-year mortgage with a 3% interest rate.
Home prices have been going up for 50 consecutive months across the country, according to data from the National Association of Realtors. There is a housing shortage, coupled with the millenial buyers have decided to enter the purchase market.
Mortgage rates remain low, giving consumers incentive to shop around for mortgage brokers and homes.
It’s still possible to buy a home in a seller’s market, though it’s obviously more difficult than it is in a buyer’s market or otherwise. Here are eight tips for buying a home in a seller’s market:
You’ve looked at towns, you’ve picked the one that speaks to you, and you start to look at houses in earnest. You find a few beautiful homes that you can’t wait to see, and when you call about getting an appointment, the house is already under contract. So you go to open houses, and you find something perfect! You decide to make an offer -- and then you hear that there are multiple offers, and a “best and final” process the next day. No time to think about your offer, and no chance to negotiate.
After going through three rounds of offers on three multiple-bid houses, and losing out each time, you throw your hands up in the air, totally dejected and wonder if you’ll ever get a home.
Here are steps you can take to help you improve your chances of winning the house you (and lots of other people) want.
1 - Make your best offer first
In strong seller’s markets, making a list price offer quickly to prevent competitive interest.
Many agents are happy to get the seller their price and do not want to do the extra work of multiple offers to get $10,000 more when their compensation is only $300. A buyer can take advantage of the lazy seller’s agent.
2 - Be ready to bid
If a quick offer of the listing price doesn’t work, the next step is to still make your best offer, but be prepared for it not to be your final offer.
Add an escalation clause of 2-3 percent more than the highest bid received. This expresses a strong desire for the property and a willingness to pay the most, sometimes this works and sometimes it doesn’t.
This method can also be used in a slow market where a buyer wanted the property but not at the seller’s price. The buyer’s lower offer includes a 2 percent escalation if another buyer comes in.
3 - Don’t counter
There are no counter offers in a seller’s market. Buyers really need to put their best offer on the table. Owners are going to see three, five, 12 offers all at once. They don’t need to write a counter, they can pick and choose the very best offer. So buyers better be amazing on the first go.
4 - Show cash
Show a seller how serious you are by offering more cash than normal in earnest money — a deposit made to the seller to show a buyer’s good faith in a transaction. If a high earnest money deposit in your area is $20,000, then increase it by $10,000.
5 - Offer non-price factors
Some sellers will accept your price if you provide some non-price considerations that can speed up the transaction, also called contingencies.
“In a strong market a buyer needs to consider waiving the financing contingency, limiting inspection to three to five days, and placing larger earnest money deposits to provide non-price consideration,” Ailion says.
In some very hot markets, the property might not appraise for the highest offer, and the loan won’t be approved. A lower offer with strong non-price factors may win out. A recent buyer compete with 13 offers and be successful with non-price considerations even though they were several bids below the top. The more contingencies a buyer has in their offer, the greater risk for a seller and the more likely a seller is to reject them in a seller’s market.
One of these is a home inspection contingency. A home inspection is important for a buyer, but some buyers will waive it to help improve their offer.
Buyers can also help themselves by being flexible with dates and deadlines in a contract. Giving a seller extra time to move out, for example, can make a seller’s offer more appealing.
6 - Have money for a low appraisal
High home prices can lead to home appraisals that don’t climb as fast, leaving lenders to not fund the loan. Home buyers have money set aside the pay the difference between a contracted purchase price and the appraisal.
Savvy home sellers are looking for purchasers that can make up the difference between the negotiated sales price and the appraisal.
7 - Use videos and letters
Not everything in a home sale is about money. A seller’s nostalgia for their home can be strong, and a short, personal letter from a buyer that shares how they’d enjoy living there might sway them.
Promising to maintain the architectural heritage of a historic home, for example, or showing how much you look forward to taking care of the rose garden on the property can show that you’ll also have a sentimental attachment to the home.
Shoot videos and write letters. One client noticed photos of international travel at a condominium he wanted to buy, so “he wrote about recently visiting Italy and how the condo made him think of his visit overseas.”
Another client beat out a higher priced offer with a video shot on her patio with her prized rose in the background. At the closing, the seller told them “Well, when my daughter saw that video, she said ‘Mom, these are the buyers for your home!’”
8- Make sure your credit is clean
Well before you want to make an offer on a house, clean up any issues with your credit report, old paid off tax liens, reporting mistakes, etc. and pay down credit card debt so that you’ll be able to qualify for the best mortgage possible at the lowest rates, to give you more buying power.
9- Find an experienced agent to support you
Shop around for someone whom you feel confident with and trust. What you need is an agent who knows how to navigate the dynamics of this crazy market, and who is responsive to you. How active are they in the market you’ve chosen? Do they return your calls quickly? Do they understand what you want? Will they serve as a scout for you?
The best agents will conduct a buyers’ consultation with you, not just show you houses. This gives you both the opportunity to create a game plan for your home search and purchase, and also for the agent to get to know what works for you, so that they can do much of the legwork and screening for you, to save you time and make sure you see new listings as quickly as possible.
Agents work the hardest for clients that work closely with them, so find someone you really like to partner with you on this journey.
10- Get Pre-approved for a mortgage
No offer will be accepted without a mortgage pre-approval these days. A pre-approval takes a few days, so if you don’t have one at the outset and wait until you find the house, it will likely be gone before you have a chance to make an offer. A good mortgage brokers like Golden Mortgage Corp. can usually get you the best mortgage options and work faster than most large banks. Start your secured online Application.
11- Be flexible on Closing Date
Try to have a date that lines up with what the seller wants. Sellers don’t always go with the highest offer – they often go with the offer that best meets their needs and gives them the greatest confidence that they will have as stress-free a sale process as possible.
12- Know where you will make tradeoffs
You may not be able to get exactly what you want, so what compromises are you willing to make? Will you live on a busier street for an extra bathroom? The house that you think is perfect is also perfect to other buyers, so the chances of competition will increase. Knowing what concessions you can handle will increase your chances of getting into a less competitive position.
13- Be Prepared for Disappointment
Don’t get too attached to a house until you are under contract. Losing a “best and final” process can be heartbreaking, but it’s not uncommon. All of the above steps can give you an advantage, but it only takes one crazy offer to blow it all out of the water. You may find yourselves going through this process on several homes before you get one, but your agent will help increase your odds to get you want you want.
14- Take Heart
Once you become familiar with the market and the process, and you have a great agent in your corner guiding you through, you will be in a strong position to get a wonderful new home.
Get Pre-Approved today call 800-327-0123 or apply online.