What is a Seller’s Market?
A seller’s market is when there are more homebuyers in a particular area looking to purchase a home than actual houses listed for sale. A seller’s market usually results in rising home prices and stiffer competition among homebuyers. Also, home sellers will have the upper hand when it comes time to negotiate. However, even if the U.S. housing market is indicating a seller’s market and the competition is fierce, rest assured that you can still buy a home.
How has the pandemic affected the market?
The pandemic has affected the housing market in many ways. Because of the shortage of available homes, and the high amount of buyers still looking for a house, the market has been in favor of the sellers. Although eventually there will be more homes listed in 2021 than there were in 2020, the market will likely still favor the home seller and there may still be considerable competition. However, if you are ready to buy a house don’t let a seller’s market deter you. According to Redfin’s Chief Economist Daryl Fairweather, “mortgage rates are as low as they may ever get, so if you are able to buy a home now, you can take advantage of low rates before they rise.” If you are interested in buying a house this year, here are nine of the best tactics to follow when you are ready to make an offer.
Be Ready to Act Instantly in a Seller’s Market
1) Get Pre-Approved for a Home Loan
If you’re a first-time homebuyer, one of the smartest things you can do to ensure your chances of buying the home you want is to apply for a pre-approval on a mortgage. Applying for a mortgage after making an offer on a house tells home sellers you may not be as motivated to buy as others. An underwritten pre-approval for a mortgage usually takes about 24 hours and is strongly recommended for those looking to buy and want to be competitive in a seller’s market.
Furthermore, you’ll receive a pre-approval letter from your lender indicating how much of a mortgage you’ve been approved for. Sharing this letter with home sellers shows them you won’t be wasting their time and that you’re motivated to buy their home.
2) Get a Great Real Estate Agent
The home buying process can be stressful and sometimes overwhelming. Having a great real estate agent by your side throughout this process can help make everything go more smoothly and aid you in making an offer quickly when the time comes. This is particularly true if you are moving to a new area or a larger housing market and looking at houses in Atlanta or New York. Your buyer’s agent can provide you with keen insights into specific neighborhoods, such as walkability, schools, and other local amenities. They will also help you when it comes time to make an offer, since they know what’s happening in the local markets and will use that knowledge to negotiate effectively on your behalf.
How to Make Your Best Offer
Once you have gone through the pre-approval process, connected with a real estate agent, and found the home you want to buy, you’re ready to make an offer. The following are things you can do to make your offer stand out among the competition.
3) Write an Offer Letter Catered to Each Home Seller
Letters to home sellers have become more and more common in a seller’s market and especially true with competitive neighborhoods. So, how do you write a real estate offer letter that will grab the home seller’s attention? First of all, don’t just tell the home sellers you want to buy their house, tell them why you want it. Home sellers are people too and will be appreciative to hear what you love about their home. Additionally, if you notice that you share something in common with the home sellers, mention it in your offer letter. If you both have kids or dogs, referencing this in your letter is a great way to make yourself more relatable, and will also show you wrote it specifically for them.
4) Make an Offer in Cash if You Can in a Seller’s Market
For sellers, an all-cash offer is very appealing and can lead to a higher likelihood of you winning the house. If you don’t have to use a lender, there’s no financing contingency, which shows the sellers that you will most likely not pull out of the deal due to financial issues. If you pay in cash the sale can also happen quickly and, overall, lead to a smoother home sale. Of course, many of us can’t afford an all-cash offer and will need to rely on other tactics.
5) Put More Earnest Money Down
Earnest money is the amount of money you put down to show how serious you are in purchasing a home, also known as good faith money. Earnest money protects the home seller in case a buyer backs out of a home sale after the offer was accepted. Unless a homebuyer backs out due to something coming up in a home inspection or appraisal, the seller will get to keep the earnest money. Earnest money can also be a great tactic to use if you’re shopping in a seller’s market or competitive neighborhood. Home sellers tend to favor buyers who put down a larger installment of earnest money because it shows that you are serious about your offer and giving you a leg up on the competition.
6) Add an Escalation Clause
An escalation clause is inserted into your purchase offer for a home and is intended to make sure you get the chance to be the highest bidder. This clause states that if the seller receives another offer that is higher than your initial bid, you are willing to increase your offer to a higher price, usually a predetermined amount. Want to give yourself the best chance at calling home in a hot neighborhood your own? Then add an escalation clause to your offer.
7) Waive Extra Contingencies
In a seller’s market, you may want to submit an offer without certain contingencies as a way to stand out among competing offers. Waiving contingencies gives the sellers an advantage by taking away protections for the buyer and should only be done with the recommendation and oversight of your agent. Waiving either the inspection contingency, the appraisal contingency, or both can be an effective way to win a bidding war. In a seller’s market, refrain from asking for high-maintenance contingencies such as only buying the house if your current one sells or that you can knock down a wall. Essentially, keep your contingencies to a minimum so the home seller has fewer hurdles to complete in selling their home.
8) Don’t Restrict the Sellers to a Timeline
Limiting the home seller to a timeline can cause them extra stress when they are likely already overwhelmed. Give the home seller the gift of time, allowing them the flexibility to move out whenever it is best for them. A rent-back agreement is a great option for buyers to purchase the home and then rent it back to the seller to give them time to find a new place to live. Something as simple as time might give your competitive offer the edge it needs to win the home.
9) Be willing to make concessions during negotiations
During the negotiation process, you may have a better chance of closing the deal if you are willing to make compromises. There may be some things that you are not willing to budge on such as a home inspection, but maybe you don’t ask the home seller to redo the back deck or paint the house before you move in. This will allow for a smoother closing process and for you to move into your new home more quickly.
Buying a home can be difficult, especially if you are buying in a seller’s market. Use any or all of the recommended tips to stand out from the competition to help you purchase your next home.