Anyone who has tried to buy a home lately knows that it can be very challenging. Historically low mortgage rates have brought homebuyers out in force. At the same time, there is a limited inventory of homes for sale. Resale listings are at their lowest level in many years and homebuilders are just now starting to replenish their supply of new construction, according to figures from the National Association of Home Builders.
All of those factors have led to a seller’s market. Homebuyers are competing with each other for the relatively few listings on the market, leading to multiple offers in many cases – sometimes as many as a dozen or more – and sale prices climbing above the asking price.
Trying to buy a home in a seller’s market can be frustrating and you may not be able to land the first home you want to buy. Still, there are ways to increase your chances of success. Here are some tips that may turn the odds in your favor:
Get Pre-Approved for a Loan
When you’re searching for a home, one of the first things you need to do is get pre-approved by a strong lender. This is different from pre-qualifying, as it is a full loan approval instead of simply an opinion letter. It is best that you take this step before looking at homes so you can go into your home search knowing what you can afford. Being pre-approved may also put you in a better negotiating position, as the seller knows the buyer is ready, willing and able to buy, and the financing is not in question. Those buyers who are not pre-approved have less chance of obtaining an accepted offer on the house they wish to buy. It is also best to get pre-approved from a local lender that our local real estate community is familiar with.
Be Prepared to Act Quickly When You Find the Right Home
Time is of the essence in this market. Winning buyers often act fast while those who wait may lose out. So after finding a home you like in your price range, don’t wait too long before making an offer. The longer you wait, the greater the chances are that other potential buyers will visit the home and decide they want to make an offer, too. And the more competition, the tougher your chances of coming out on top. So if you find the right home, make your move!
Make a List of Must-Haves vs. Want-to-Haves
Greater competition means buyers have to move quickly and decisively when they find the right home. But what is the right home for you? What do you really want in a home and what can you live without? Sure, we all want the home of our dreams, but we have to be willing to adjust. Before you begin shopping, make a list of must-haves and want-to-haves. This will help your agent narrow down the list of properties you’ll be seeing and help both of you move quickly when you find the right one.
Make a Strong, Competitive Bid
In a seller’s market, homeowners may receive several offers, so make sure yours is strong by working with your agent to decide what a fair price for the home is and how to craft the best offer. If your initial offer is too low, you may be out of the running before you even get started. Many offers that are being accepted have no contingencies. You should discuss with your agent the implications of this strategy and whether it makes sense for you.
Make a Good Faith Deposit
Most offers to buy a house include a check as a “good faith deposit” or “earnest money.” The reason for the deposit is to impress upon the seller that the buyer earnestly intends to purchase the property. While there is no set amount required, it is customary to make a “good faith deposit” of 1 to 3 percent of the sales price. Larger deposits tend to be preferred by sellers. Your agent can help you determine this.
Be Flexible in Your Offer
Sometimes it’s not the highest bid that wins in a competitive market. If you can offer a larger down payment or even be flexible about when you move in, you might be able to increase your chances. Sellers looking to buy another home themselves may even welcome the opportunity to retain possession of the home after escrow closes for an agreed upon period of time.
Write a Letter to the Sellers
Many sellers are receiving multiple offers these days. Sometimes a personal letter about why you want to buy their home can make your offer stand out. This may be an opportunity to make a favorable impression on the hearts of the sellers and move ahead of other bidders.
Don’t Give Up!
Trying to buy a home these days isn’t easy. In a seller’s market, the chances are that some of your initial offers will be rejected and you can’t take it personally. It’s just part of the process. Don’t give up! While it can be frustrating, the search won’t last forever.
Work With an Experienced, Knowledgeable Realtor®
In a hot seller’s market, the selling process tends to move much faster than normal. As a buyer, you often have to move quickly as well, while still making prudent decisions about the home purchase. An experienced, knowledgeable real estate professional will know the neighborhood, the pluses and minuses of the home, what the sellers are looking for in an offer and how to improve your chances to come out on top in a competitive market. Many times the deciding factor is the agent who represents you. Do your research.