Buying a home can present challenges throughout the process, no matter the time of year or the state of the local real estate market. Indeed, there are times throughout the year that can present fewer challenges than others. Then there are the anomalies.
This past year and a half, our real estate market has been experiencing low housing inventory levels. In most cases, low housing inventory levels lead to an advantage for home sellers and create what is known as a sellers’ market.
And now, if you are one of the multitudes of potential homebuyers who have wanted to take advantage of these historically low-interest rates, you may be feeling like you’ve missed the boat as they begin to creep up. Or maybe you have already dipped your toes into this current real estate arena only to become discouraged by the overwhelming competition that is out there.
We’ve touched on “buyer fatigue, “i.e., frustration in previous blogs, but here we would like to offer some thoughts on what it takes to be a competitive buyer in a sellers’ market.
What Is A Sellers Market In Real Estate?
A seller’s market exists when several buyers compete for the same home due to limited housing options available for sale.
At another time, real estate professionals will use a market absorption rate calculator to determine whether the market has shifted to a sellers’, buyers’, or balanced market.
While we will always pay attention to absorption rates, we do not need a calculator to determine we’re in a seller’s market. This seller’s market is easily identified through simple observation. Just ask anyone who has attempted to buy a home over this past year or so.
Considerations for Buying a Home in a Seller’s Market.
Buying a home during a seller’s market is not for everyone. A buyer must consider many things before deciding whether buying a home during a seller’s market makes sense or not.
Below are a few considerations.
Interest rates should be a significant factor in whether or not to purchase a home in a seller’s market. Currently, interest rates are still near historic lows, making it a great time to buy.
In a seller’s market, the number of homes for sale will be limited. Buyers overly insistent on precise housing criteria may have a difficult time in this real estate environment.
Buyers will likely find themselves in multiple offer situations. There are some things they can do about this, and I will get to that in a moment. But for now, it will suffice to say that being mentally and emotionally prepared for the competition with other potential buyers is critical.
Supply and demand – it’s all about supply and demand. We’ve talked in a previous blog about the causes of this current housing shortage, but for now, we will say that this is a time to know what the value of any specific home is to you, the buyer. In a seller’s market, value needs to be determined by more than price because this is not the type of market to be looking for bargains or making low-ball offers.
How To Be Prepared To Buy A Home In A Sellers Market
Once a buyer decides there is value for them in this seller’s market, the hard work begins. And, there are some things a buyer can do that can be critical to their success in achieving their dream. Below are some tips for buyers who are interested in buying a home now.
Build a Strong Team
This real estate market is not for the faint-hearted buyer or an inexperienced team if you want to succeed in finding your next home. Choosing both an experienced realtor and a solid lender is critical during a seller’s market. Things happen very quickly, and a buyer’s agent must be on top of the market at all times. Buyers may be able to spot that potential home on Zillow, but they won’t be able to know what the showing conditions are, how much interest there has been in the house, or what it will take to make a “clean,” competitive offer. Having confidence in your realtor’s ability to communicate, negotiate, and keep your best interests as a priority at all times is essential.
It is every bit as essential to have a good lender. A lender who stays on top of a transaction at all times is critical to a buyer’s success. Timely pre-approval and a commitment to constantly communicate with the buyer, the buyer’s agent, and the seller’s agent is critical to keeping a transaction together throughout the escrow.
And one last thought. Using local realtors and lenders is often underrated. Big box or out-of-area lenders and realtors can sometimes ground the process before it gets started. As local realtors, we all know who we like to work with regarding other realtors and lenders. We all want to get an offer accepted, and we all prefer to know we are working with other agents and lenders that we know will work hard and ethically to get a transaction through escrow.
Get Your Financing In Order
One of the most important steps to starting a home search is getting pre-approved. It only makes sense for a serious buyer to take this step as early as possible in any real estate market. Knowing how much you can afford will help you set realistic expectations when setting up your search parameters. But, in a seller’s market, pre-approval is essential if you want to be competitive. It is not unusual for a home to hit the market and then go under contract within a few days. If you see something you like and want to make an offer, there is a good chance that it will be too late by the time you take this step. Also, many sellers won’t even allow non-pre-approved buyers to see their home in a seller’s market, knowing they will get offers regardless and prefer not to waste time with unprepared buyers.
Be Ready To Shop
Buying a home can take lots of time and effort. Since the inventory level is low during a seller’s market, buyers must be ready to shop for a home. If possible, it would be a good idea to arrange for some flexibility in your schedule. During a seller’s market, it’s not uncommon for a home to have multiple offers within the first 12-24 hours of being listed. A buyer with too many time limitations may miss out if they cannot view a home immediately.
Buyer Contingencies Worry Sellers
The three built-in contingency periods that allow buyers to back out of a home purchase without penalty are the home inspection, the home appraisal, and the loan. Sellers know the biggest hurdles in an escrow have been crossed once these (and any other) buyer contingencies are released. Here, the realtor, the buyer, and the lender need to come together to determine what they can do to expedite or eliminate buyer contingencies to allow the agent to write as competitive an offer as possible.
Be Realistic & Flexible
Buyers willing to be realistic with the price and be flexible with dates and deadlines in a contract will have an advantage over other buyers in the marketplace. An experienced buyer’s agent will know what questions to ask a seller’s agent to structure a purchase offer that gives the buyer an advantage. The buyer needs to know where they are willing to be flexible and sometimes accommodating to get their offer accepted.
A home purchase is a big decision, and there is much to consider before taking this step. Buying in a seller’s market has its challenges, but working with a good team that protects your interests is also very doable. We welcome the opportunity to talk with you about what it would take to get you started.