You have the down payment saved. You have a solid job. Your credit score is excellent. Now you just need the home. But how do you find one in a white-hot market? Every house you tour seems to sell almost instantly.
Although it can be daunting to try to purchase a property in a raging real estate market, it can be done. Here are some tips for buying a house in a seller's market.
- A hot real estate market occurs when there is greater demand for housing than available homes.
- Get a mortgage preapproval to help reduce time and be an attractive buyer.
- Be ready to pay more for a home because values are up in a seller's market.
- Find a great agent who can help you be selective and widen your search.
- Be prepared to act quickly if you find the home you want.
What Is a Seller's Market?
A seller's market occurs when there is more demand for homes than are available on the market. This results in fierce competition between buyers seeking to purchase from a limited pool of properties.
The market is cyclical, however. A buyer's market is just the opposite. There are more properties for sale than interested buyers. Unlike a buyer's market, a hot market moves quickly, so you'll need to move quickly.
Mortgage Preapproval Is Essential
When many houses are for sale, you have more time to wait for the loan approval process. However, there may not be enough time to apply for a mortgage in a seller's market and wait. Freddie Mac conducted a benchmark study on closing times and found that in the second quarter of 2020, the average closing time hovered between 42 and 46 days. Anything you can do to reduce the time it takes to close will work to your advantage.
A mortgage preapproval is one of the best ways to increase your chances of getting the house you want because it can speed up the process. Some sellers may not entertain offers from prospective homebuyers if they don't have preapprovals. Additionally, some realtors have taken to requiring proof of preapproval before they even work with you.
Find the Best Real Estate Agent
Real estate agents can be invaluable when it comes time to buy a home. With a finger on the market's pulse, they can show you properties you wouldn't otherwise find. Even more important? Relationships.
"I highly recommend utilizing review sites like Yelp, Google, and Zillow to find yourself a local buyer's agent that has a proven track record," Jason Zaitz, a Silicon Valley real estate agent, told The Balance by email. "The highest-rated agents typically have great relationships with listing agents in the area. This can be the difference between you getting your offer accepted when you're competing against 20+ other buyers."
Many properties offer virtual showings. These showings allow you to "tour" the home from the comfort of your couch. Take advantage of these to quickly determine whether a property suits your needs.
Be Prepared To Pay More in a Seller's Market
According to the National Association of Realtors (NAR), 29% of homes sold above the asking price in 2021. Such is the nature of a seller's market.
Aside from working with a great real estate agent, there are other ways to stand out in the crowd of interested parties. For example, some sellers will appreciate personal letters explaining your situation and why you'd like to buy the home. Others may be interested in more money, in which case, an offer above the asking price could greatly help your case.
Contingencies within an offer allow you to step away from the property if you or the seller fail to meet expectations. Some common contingencies include the sale of your current home, the satisfactory completion of a home inspection, and your ability to secure financing.
Here are some tips for making your offers competitive:
- Price: The exact dollar figure isn't always the most important factor, but don't offer less than the list price. You may need to offer more than the amount the seller is asking for.
- Earnest money deposit: Your earnest money deposit is the amount of money you submit with your offer. A larger earnest money deposit might look attractive to a seller weighing multiple offers. Ask your agent for advice on the deposit, then consider doubling or tripling that amount. You're going to pay it anyway at closing.
- Don't request favors: This is not the time to ask the seller to give you the refrigerator or washer and dryer, part with fixtures, or paint the front door.
- Delay buyer possession: If it's customary for the seller to move at closing, consider giving them a few extra days. The seller may look more kindly on an offer that lets them move at their leisure.
- Submit your preapproval letter and proof-of-funds documentation: If your preapproval letter is from an out-of-area broker or lender, get a local preapproval instead. Match your preapproval letter to your sales price, and date it the same day as your offer.
Be Selective in a Seller's Market
Seller's markets are not only geared toward the people selling their homes; they tend to have a smaller supply of homes than a buyer's market does. This is one of the reasons prices are up during a seller's market and that sellers can afford to wait for the right buyer—demand is higher than supply. With these factors in mind, it's important to still be selective.
A seller's market doesn't mean that you should settle for a house that you wouldn't buy in different circumstances. Instead, it might mean that you'll need to be more patient and keep looking for the house that fits you. Remaining patient can also keep you from making quick decisions about a home that you'll regret later.
Price May Not Always Win
There are other considerations when buying a home in a seller's market besides price. You may be able to offer the seller some financial incentives or assistance that can help win you the deal. Closing earlier, offering to pay all closing costs, waiving all items the inspection found that need repairs—anything that lets you get ahead of other buyers can help.
In a seller's market, it might take you a long time to find and close on the right home, so it helps to be mentally prepared for a long battle with other buyers.
Widen Your Search Area
Because the supply of houses is down in a seller's market, you may not be able to find the home you're looking for in the area you have your heart set on living in. It can help to broaden the area you're searching in so that there are more homes for you to choose from.
This may cause you to have more expenses in the long run, such as gas for longer commutes to work, shopping, and amenities, but you increase your chances of success if you're willing to look and live in a larger geographical area.
Act Quickly in a Seller's Market
Have you heard of "timing the market?" Don't do it, Zaitz said. "Trying to time the market is nearly impossible, in my experience. I've seen many buyers try to wait until there's a dip in the market and consequently get priced out within a year searching in a desirable area."
This is especially true in a hot market. Homes are going quickly, which means you'll need to act fast if there's a property you like. If you see a home that appeals to you is listed, don't wait until it's convenient to go for a showing. Your convenience often means the difference between catching a property and missing the boat entirely in seller's markets.
Frequently Asked Questions (FAQs)
Can you negotiate in a sellers market?
You can negotiate regardless of the market you're buying a home in. However, you'll need to change tactics in a seller's market because you have to make the most attractive offer. The best offer might not always be the highest price.
Can I outbid an accepted offer?
You can place a bid on a house that already has an offer. However, if the contract between the buyer and seller has been signed, the seller cannot consider your offer.
Does a higher down payment make your offer more attractive?
The down payment is generally not interesting to the seller—most likely, they won't even know how much you're putting down—because it is part of the process of getting a loan. A seller only cares about selling the home and getting the best deal.