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With buyer demand exceeding home availability, it’s currently a solid seller’s market. Although it’s harder for buyers to negotiate in a seller’s market, that doesn’t mean it’s impossible or that you shouldn’t negotiate.
Here’s what makes a seller’s market and tips for putting in an offer that gets accepted.
What is a seller’s market?
A seller’s market is when demand from buyers exceeds the number of homes available on the market. Currently, the housing market is experiencing a seller’s market — home inventory is low, and sellers are engaging in bidding wars to buy what little number of homes are available. As a result, sellers have the upper hand in both negotiations and high purchase prices. Homes may also sell in a week or less in hot markets.
Although seller’s markets tend to favor sellers, this doesn’t mean buyers can’t get a good deal or attempt to negotiate. This is especially true if you might be able to offer something other buyers can’t.
Planning to buy a property? You need to get your hands on as much info about it as possible. Kukun iHomeReport will provide you a full report on the house you want to buy. Simply enter the address and you’ll be able to download a complete report — including information on previous remodels, building permits, neighborhood comp, etc.
Tips for buying a house in a seller’s market
Make lots of offers (and expect to get a lot rejected)
In a seller’s market, you’re much more likely as a buyer to get your offer rejected. That’s why it’s important to make lots of offers — and make them quickly. The sooner you can submit an offer, the less competition you’re likely to have. But, you still may be outbid by other buyers — that’s to be expected.
In a seller’s market, don’t get too attached to any home. Instead, keep a close eye on the market and make as many offers as possible on homes that meet your criteria. This is especially true if you’re on a tight timeline for moving.
Avoid offering too low
While you may be tempted to make a low offer with the assumption that the buyer will negotiate, the reality is that the buyer won’t want to waste their time if your offer is too low. They’ll think it unlikely that you’ll be willing to increase to a reasonable price in a seller’s market and move on to other, more realistic offers.
Instead, try to make your best offer first. Many agents will encourage their clients to accept the top or best offer, rather than engaging in a bidding war in order to move the sale along. You can take advantage of this by providing a solid offer at the asking price or above, depending on your market.
Get preapproved for a loan
When you’re shopping around, be sure to let sellers know you’re serious by offering a preapproval letter. To get this, you’ll approach your lender and provide basics about your income, debt amount, and credit score.
Having a preapproval letter shows you have the funds to close the deal and it won’t fall through at the last minute — making your offer more attractive to the seller, even above ones offering more money. Whether you pay off your mortgage in 5 years or 30 years is up to you.
Ask for little or no contingencies
You can strengthen your offer by reducing your contingencies, or excluding them altogether. Contingencies are restrictions on your offer and may include financing, inspection, or home sale contingencies.
A financing contingency, for example, may stipulate that your offer is only valid if your lender approves your loan. In the case of an FHA loan, where you plan to put 3% down, your home essentially needs to appraise at or above your offer price. This leaves little room for a discrepancy. As a result, a seller may not find this offer attractive, as the deal could easily fall through — leaving them without a buyer and having to start over.
Read more: Most difficult steps of buying a home
Offer more earnest money
In a seller’s market, sellers usually have their pick of many attractive offers. You can make yours stand out by offering more earnest money. Earnest money is an amount of money you put down as a deposit when you put an offer on a home — also known as a good faith deposit. Because the acceptance of an offer usually causes a seller to take the home off the market, earnest money provides them with a little extra cash for their trouble if the deal falls through and they have to start the process all over again.
Unless you spell out a contingency in your offer, if you back out of buying a home for any reason, you forfeit your earnest money. The amount of money expected in earnest money varies greatly by market, so discuss this with your agent and consider offering a little more than normal to make your offer more attractive.
Read more: Marketers dilemma, creating demand
Expect a bidding war
In a seller’s market, plan for a bidding war and decide in advance how much you’re willing to offer for your dream home. It can be easy to get caught up in emotions and negotiations and end up paying more than you can afford — or more than your initial maximum budget.
Aside from the offer amount, consider what you may be willing to budge on in order to entice the seller to opt for your offer. This may include removal of contingencies — as mentioned above — a quick closing date, or the ability for the seller to stay in the home temporarily after closing. Because closing costs are typically split between buyer and seller, you could also offer to pay more than your fair share as a buyer. Regardless, having a plan for what to do in the event of a bidding war will help your process run much smoother.
Don’t get too attached
As a buyer, it can be easy to get emotionally attached to your dream home once you feel you’ve found it. But in a seller’s market, this can result in you paying too much for the home and giving up too many concessions.
Adjust your expectations in a seller’s market, work closely with a good, local real estate agent and be willing to put together a competitive offer using the tips we mentioned above — without getting too carried away.