Many families have found their bank savings accounts a little fatter over the last two years, thanks to remote working, less commuting, and more cooking at home instead of dining out. If that sounds like you, and you’re in the market to buy a new home, you might find that new construction fits — maybe for the first time — in your budget.
But is now the right time to buy in today's Seller's Market?
What is a “Seller’s Market”? It’s when homes are scarce for sale but plenty of potential buyers. This can lead to open houses that feel more like Black-Friday sales (or Covid testing queues), desperate FOMO-based decision-making, and multiple offers on homes you wouldn’t usually be so excited about. Like the term alludes to, it’s the Seller who benefits in a seller’s market.
Ever since the pandemic began, America has been in a low inventory situation, with small towns and cities and warmer climates (think Florida and Texas) bursting at the seams with buyers relocating and looking for a new place to put down roots. In the hottest markets, homes are selling within days of being listed. This gives prospective buyers very little time to research available homes, make a bid, and be chosen by ever-picky sellers.
"We were in a low-inventory situation before COVID and it hasn't gotten any better," says Peter Klein, the team leader of The Tress Team at Keller Williams (www.TressHomes.com). "It is an easy time to sell, but buyers need to have a game plan for home shopping in this market."
Tips for breaking through
So how do you push past the competition to find and buy a home that you’ll love? Here are seven tips that can improve your chances that you’ll find a dream home — even in this tight market — and have the winning offer!
1. DON’T BE CASUAL ABOUT HOUSEHUNTING.
The housing market is crazy right now, and homes can be snatched up before the listing’s even updated online, so you can’t be too casual in your search. If you’re serious about buying, house hunting needs to be a priority, not a hobby. Remember, even though fewer houses are on the market, you can’t expect to see them all. Be mindful that you need to get out of your own way so that when you find a home that fits your budget, you won’t feel compelled to see everything else listed in the area before making an offer.
We all know that the perfect home does not exist – even if the home design magazines and makeover TV shows tell you they do. No single home will ever satisfy everything on your “must-have” checklist, so don’t hold out waiting for one that will. Instead, check new listings regularly, be prepared to drop everything to view a home as soon as it hits the market, and put yourself in the frame of mind where you can make a quick decision when you find one that meets most of your needs.
"I want my homebuyers to 'know the market'", advises Klein. "That means they should know what they want, and know generally how much what they want is going cost. That way when they see the right house at the right price, we can submit an offer that day."
2. BE TAKEN SERIOUSLY.
Even with such stiff competition, many buyers will still go to an open house or walk-through without having first obtained a mortgage approval letter from their lender. A pre-approval means that a lender has thoroughly assessed your income, credit and general expenses and has determined what you can afford, given their underwriting guidelines. In essence, it is proof of a funding commitment and shows a seller that you are a serious buyer, are purchasing within your budget, and have enough saved up to cover closing costs.
Now don’t mistake a pre-approval with a prequalification. If you put in an offer accompanied by just a prequalification letter, your offer doesn’t carry as much weight. Prequalification assessment only indicates what you can afford based on what you “tell” your lender your income and saving are. It’s not based on a deep dive into your finances by a professional underwriter. But an offer with an underwritten pre-approval shows you’re a serious buyer and that you’re able to close on the home faster — and with fewer hiccups — than a buyer who is merely pre-qualified.
Klein tells homebuyers to not waste time home shopping until they have a pre-approval in hand.
"If you want to be successful in this market," he advised, "You need to be ready to make an offer right away which should definitely include a pre-approval with any contract presented."
3. COUNT OUT CONTINGENCIES.
Even if you make a decent offer on a house, adding contingencies — like having to sell your current home before closing on the one you’d like to buy — will likely push your offer to the bottom of the pile. There’s no bigger turn-off to sellers. Still, many homebuyers include contingencies with an offer, often petty ones. It’s not a move for the faint of heart, but with such scarce little inventory at the moment, making a contingency-free offer tells the seller you’re earnest and eager to get this deal done.
"Home owners as buyers are not as strong with their offer as home rents are," Klein states. "If I can submit an offer from my clients with as-is, all-cash and no home to sell, we are a well position buyer in this competitive market."
4. DON’T YOU DARE LOWBALL.
How many times do we have to say it? It’s a seller’s market, and for the time being, there is not a lot of inventory out there to choose from. So if you’re serious about buying a new home, don’t play hardball. Sure, you can bid for lower than asking but you may not get a callback. Many homes are going for the asking price (and more) within a few days (sometimes hours) of being listed.
So be smart about it. Make sure your bid will keep you within a monthly budget you can afford and prepare for a bidding war if the property is a charmer.
Remember, the old rules no longer apply: making an offer that’s 10% below the asking price — which used to be the norm — can insult the seller, who will then gladly turn down your offer. One last thing: don’t get emotional about the place. If the bidding war ramps up and pushes out of the bounds of your budget, step away.
5. BREAK OPEN YOUR PIGGY BANK.
The fact is that bigger down payments are VERY attractive to sellers. According to the National Association of Realtors, the average down payment on a house or condo in 2021 was just 12%. For homebuyers under age 30, it was just 6%. And many people put down even less money – or no money at all.
There are many reasons that sellers love offers with larger down payments, not the least of which is the belief that a buyer with a larger down payment will be a smoother sale and will stick to the closing date. The smoother you can make this transaction, and nothing greases the wheels like money, the better for all. So make an offer with the highest down payment that you can muster — within your limits, of course, don’t go broke doing it.
That said, some sellers will also be empathetic to those without huge bank accounts — they may have once been in your shoes. For many homebuyers, saving up for a down payment is not easy, especially in today’s higher-priced market. So make sure you chat with a loan officer to determine if you qualify for loans with lower down payment thresholds. Several programs available nationwide can help, and they’re not just limited to low-income or first-time buyers.
6. CONSIDER THE UGLY DUCKLING.
Have you ever Googled some keywords and not found what you want in the search results? You probably added a few extra words to broaden your search. The same strategy works when you’re buying a home. If you’re not finding what you want (or getting outbid on a property you have your heart set on), consider properties just outside of the in-demand neighborhood you’re focused on, or look at houses that may need some remodeling or renovations. You might find the perfect home when you lower your expectations to 85 or 90% of what you “must-have.”
Homes that require investing in a few upgrades to bring them up to your standards are worth looking into — especially since perfectionists will probably pass them over. Many buyers can’t see past even a small home renovation, but if you can deal with a bit of sawdust and hammers banging for a few weeks, your dream home — maybe even with a new kitchen or bath — could be right in front of you. You just have to open your eyes — and your imagination. Work with your lender to see if you can factor contractor costs into your financing plans.
"Many homebuyers - especially first time homebuyers - can be fearful of a house that needs some work," Klein says. "But overcoming that fear and buying a 'diamond in the rough' can help will a bidding war and earn a buyer equity when the improvements are made."
7. GET PERSONAL
When a seller is getting multiple offers, all tend to look the same — the only difference is the bid amount. So how can you make yours stand out — even if your offer is as good as the others? An offer letter can help.
A personal note, written directly to the seller detailing why you feel in your heart of hearts that their home is perfect for your family, could be just the thing that sets your offer apart from any others.
Connect with the seller emotionally. Tell them how you fell in love with their home, that you’d love to be the caretaker of their memories and why they’ll be so happy that they chose you as a buyer. Tug on their heartstrings – after all, they once fell in love with the house too — but don’t get too sappy, and be sure to keep it short and sweet. Finally, consider adding a family photo. After all, a picture is worth 1,000 words.
"We had a buyer client who was a military vet and used a VA loan when submitting his offer," remembers Klein. "The sellers told us that selling to a vet made them feel good and was a deciding factor in selecting our client's offer."
Are you in the market to buy a home? Let the experience of the Tress Team at Keller Williams help. We will provide a free, no-obligation consultation to buyers to begin the process of purchasing your dream home. Get started with your home search at www.TressHomes.com and/or email us at tresshomes+buy@gmail.com.
