House hunting is challenging enough at any time; shopping during a seller’s market is a whole additional difficulty level—and that’s what would-be buyers are seeing across the country. The supply of homes is low, demand is high, and sellers are in control. If you’re not careful, you’ll be left drying your eyes with the broken shards of your rejected bid. Sound painful? It is. So you’d best bring your A-game, or don’t bother showing up at all.
A lack of homes for sale in many parts of the country is making house hunting a challenge this spring, especially for first-time buyers. Tight housing inventories have pushed up home prices in many metropolitan markets, creating bidding wars for some properties.
Real estate is highly local, of course, and trends range by city and by neighborhood. But nationally, home prices in March were up nearly 7 percent from a year ago, and up 2 percent from February. The dearth of inventory is particularly acute for entry-level homes. First-time homebuyers are having a tough time, because so few homes are available.
Nationally, 6 percent fewer homes are on the market compared with a year ago, and there are 10 percent fewer entry-level homes. The reasons for the tight inventory vary. In some areas, homeowners are still underwater — meaning they owe more than their home is worth — so they are unable or unwilling to sell until prices rise more and they gain equity.
In other markets, the lack of new home construction is contributing to the problem. Homeowners who want to sell their homes and trade up can’t find a suitable new home, so they stay put — keeping their property off the market. The lack of homes on the market has also helped raise rents, so investors who bought single-family homes during the downturn are making good money renting them out and aren’t in a hurry to sell.
Many markets are favorable for sellers. Buyers, though, may have to be patient. Check out the seller’s market survival tips below to stand out from the competition and get the edge.
Know the signs
Even though you may hear you’re in a seller’s market, where’s the proof? While the market varies based on where you live, you can watch for these two red flags:
- Houses are selling for more than asking price.
- Homes sell quickly, and inventory doesn’t hang around.
Look through listings for your area. If the majority of houses have been sitting on the market for more than six months, it’s not a seller’s market. But if only those ultraluxe properties have been on the market for over a few months, that indicates houses are getting snatched up quickly.
Commit to being on call
To succeed in a seller’s market, you have to make house hunting a priority—not just something you fit in here and there on the weekends if you have nothing better to do.
If you’re only looking now and then when it’s convenient, you’re probably wasting your time. Treat house hunting as if you were job hunting: Scour listings regularly, and if someone calls about a viewing, head in at their earliest convenience—not your own—and follow up promptly if you feel it’s a fit.
Come bearing paperwork rather than promises
In hot markets, talk is cheap—especially if it’s a buyer swearing he has plenty of money for a down payment or will have no problem getting a mortgage. The way to be taken seriously is to show up with hard evidence in hand these claims are true: a mortgage pre-approval letter, plus a “proof of funds” form from your bank showing you have enough to cover the down payment. That way, the seller knows you can put your money where your mouth is.
Waive the what-ifs
Typically, when home buyers make an offer, they do so only with contingencies. For instance, they’ll buy the home if the inspection goes well or if they can secure financing. But in a seller’s market, it may behoove you to drop one or two of these caveats to stand out to sellers, who generally would prefer as few hurdles on the way to closing as possible.
For instance, if your credit history is spotless and you’re all but guaranteed to get a home loan, waiving the financing contingency may not be a big deal. But it can be far dicier to waive the inspection (what if the house has major flaws?) or a title contingency (what if there’s a lien or back taxes on the home that now must be paid by you?). Consult with your Realtor, too, about what’s worth the risk.
Don’t play hardball
In your typical home-selling scenario, buyers make an offer below the seller’s asking price, then negotiate upward from there. But in a seller’s market, often there is little to no room for price negotiations. In fact, if there are multiple bids, you could end up paying well over asking. So how high should you go?
Widen your search
In seller’s markets, it’s not unusual to feel outpriced in your favorite neighborhood. But that may merely mean you need to start scouting farther afield—like, say, in an up-and-coming neighborhood nearby.
Sometimes properties sit, even in a seller’s market, because of a problem that is scaring other buyers away. Yet those “flaws” (e.g., an extra five-minute drive from school or some renovation work that needs to be done) might not be such a big deal to you. While such houses may not be ideal for all, finding a house this way can also cut down on the amount of competition you will face.” And that means you hold a few more cards—a welcome change in a seller’s market.
Here are some questions and answers about buying a home this spring:
■ What can I do to prepare to buy a house in a tight market? – Get preapproved for a mortgage, so the seller knows you are serious, and make sure you have a preapproval letter, rather than one saying you are merely “prequalified.” There’s a big difference. Prequalification may be based on verbal information given by the borrower, while preapproval means the lender has run a credit check, verified your income and has authorized a loan for a specific amount of money.
■ Are there other ways, besides price, to make my offer attractive? – Putting down as large a deposit as possible shows you’re serious. And agreeing to requests that reduce hassles for the seller can help, too. For instance, if the seller asks to leave behind a backyard swing set, you may want to agree — even if your children are too old to play on it. Let them leave it, and you can take care of it. It may be advantageous. In areas with extremely low inventories, buyers may have to go further. Traditionally, a home inspection is done after an offer is made and accepted. Contracts typically contain language allowing the buyer to negotiate repairs if the inspection turns up problems. In some tight markets, buyers are having homes preinspected at their own cost, seeking to appeal to the seller by making an offer without a contingency clause. That can get expensive if shoppers end up making multiple offers; inspections can range from $150 for a basic walk-through to $800 or more for a detailed inspection.
■ What’s happening with home mortgage rates? – One bright spot for house hunters is that mortgage rates are remaining low. The average rate on a 30-year fixed mortgage was 3.61 percent for the week that ended May 5, according to Freddie Mac. Shoppers seeking home loans, however, should be prepared to provide detailed financial information because of tougher requirements since the financial crisis. Much more documentation is needed. To minimize delays, have tax returns, pay stubs and W-2 forms on hand when you meet with your lender.
Local Real Estate Expert
But, above all, your best resource for buying a home in this area is the local real estate expert. He or she will have all of the tools you will need, including sold data and an easy-to-use home search, to help you easily find the best home.
Are you ready to buy a home? Let us help! Contact us today and we can work with you to find your ideal home and navigate the current market.