The real estate market sometimes witnesses fluctuations which make certain seasons get busier than others. This makes both buyers and sellers alike think certain times of the year are the appropriate or best times to sell or buy a home. But in actual sense, fluctuations have nothing to do with the time of the year; it is related more to the concept of supply and demand in a particular market.
The real estate market in a locality is different from what is obtained in another area. While a real estate market is experiencing fluctuation at a point in time, another may just not feel it. Hence, as a buyer in a new market, it is important you understand and pay attention to your local market to know whether it is experiencing a buyer’s market or a seller’s market. This will help you time your real estate transactions and put you at an advantage when it comes to property prices.
[READ: 14 STEPS TO BUYING A HOUSE]
What’s a Seller’s Market?
A seller’s market in a real estate simply means that demand exceeds supply. This gives rise to a situation where there are more people looking to buy houses than the houses that are available for sale. A buyer’s market is the direct opposite; it occurs when supply exceeds demand.
In a seller’s market, the real estate inventory is low, creating a shortage of homes available for sale. This puts sellers at a great advantage, raising the prices of the few homes available and increasing competition among buyers.
Buyers are pushed to make quick decisions, throwing themselves in the ring of bidding wars which may force them to spend more than their budgets. There is also the case of increased interest which takes the power to negotiate away from buyers as they would be willing to accept any property they see as-is.
Buyers often wonder if this is a good time for them to buy a house or if they stand any chance of getting the home of their dream at a reasonable price. While buying a home in a seller’s market is pretty much difficult than it is in a buyer’s market, it is not entirely impossible. Find below helpful tips that will drive the odds in your favour and give you upper hand.
Tips to Buying a Home in a Seller’s Market?
Determine you are in a Seller’s Market: You need to determine if you are really in a seller’s market as this will help you to understand the most effective home buying strategy to use. But you may not be able to determine if you are in a seller’s market alone, especially if you are a first time homebuyer. The professional local real estate agent you employ can help out in this regard; they can do a few easy calculations.
The real estate agent can calculate how many months it would take to sell all the homes in the inventory for sale in the area; if the number comes low, you are in a seller’s market. The real estate agent can also use any other method used in the local real estate market, after all, they are familiar with the location.
Expand your Search: As noted earlier, one of the characteristics of a seller’s market is that prices are always astronomically high. You best choice might then be to expand your search and not limit your quest to the hottest neighbourhoods. Beam your search light on the less popular areas; you may be lucky enough to get the home you need with better amenities for lesser price. At times, buyers overlook other beautiful neighbourhoods with good features and amenities because they are not hyped. But it is good to explore the less-talked-about areas as some of them are untapped diamonds.
Customise your Offer to the Seller’s Needs: Another way of being successful as a buyer in a seller’s market is to understand that it is not all about the price sometimes. While other buyers struggle it out in the bidding war with their offers, consider tailoring your offer to the needs of the seller; this might just be a winning strategy for you. The seller may be captivated by your offer and decide to accept it. Including some contingencies that are favourable to the seller might work. The contingencies can include closing earlier or offering the seller ample time to allow them move easily into their new home if it is possible.
Don’t Consider Submitting a Low Offer or Countering: Bidding with an offer that is lower than the seller’s asking price may be a complete waste of time for you. Do not forget that are many buyers jostling for a few homes, so your chances of getting ahead with a low offer is very slim.
Also, remember a seller’s market does not entertain counter offers. The implication of this is that you have to put your best offer on the tables. Sellers are going to be at liberty to choose the best offer on the table, so they do not need to write a counter.
Waive some Contingencies: There are contingencies in a contract offer that protect the buyer but add uncertainty for the seller. One of these is a mortgage contingency that allows you to back out if your mortgage is not approved.
Experts believe that your offer will be strengthened if this contingency is removed even if your offer is not the strongest among those submitted. Ensure you have a backup plan such as higher down payment if you are unsure of getting approved.
Submit an all-cash Offer: Consider making an all-cash offer; it may turn out to be more very attractive than a higher bid that is dependent on a mortgage. Cash offers close faster and eliminate most risks associated with mortgage such as not getting funded. Most sellers love cash offers for these reasons. In fact, cash offers are also beneficial to you as a buyer; it gives you much more negotiating power and helps you save on the transaction. Cash offers also tell a seller how serious you are. For instance, you can increase the earnest money deposit in your area by 50%.
Get Pre-approved: Another strategy you can use to buy a house in a seller’s market is to ensure you are preapproved. Being preapproved minimizes risks for sellers, so they prefer buyers who are preapproved.
Consider Renting: If you are not making headway in a seller’s market despite trying the tips above, you can rent an apartment pending the time you are able to find the home you think is right for you. Renting a temporary apartment buys you time to search more and re-strategise on what you really want to buy. You may end up developing a new taste entirely – you may decide against the neighbourhood you have been hitherto considering or even come up with other features and amenities you would like in your new home that you never thought of initially.
[READ FURTHER: WHAT YOU SHOULD KNOW ABOUT HOME APPRAISALS]
Buying a home in a seller’s market may be difficult due to the prevailing circumstances such as many interested buyers engaging in bidding wars for a few homes and higher prices. But it is not entirely impossible; there is no harm in trying. If you feel you are in a seller’s market and in need of a home, try out the tips above. They might just be what you need to do to get ahead.