Winning Tips for Home Buyers in a Seller's Market
- Troy Grimes, REALTOR®
- Jul 18, 2021
- 4 min read
A surplus of home buyers. A shortage of saleable home inventory, both re-sale and new construction, has led to the most competitive U.S. housing market ever.
"Inventory levels are insufficient." Dr. Lawrence Yun, Chief Economist, National Association of REALTORS® (May 2021)
Read on for strategies to win against competing bidders in the current housing market.
7 Tips for Buyers to Win a Home in Today's Market
Hire an Experienced Buyer's Agent
Find a competent, licensed buyer's agent to guide you through the home buying process. If you don't personally know a local REALTOR®, then ask a friend, family member, or trusted colleague for recommendations. Your chosen agent should be an expert in the marketplace, with access to details on listings posted by other agents in the local multiple listing service (MLS.) The housing market remains fluid. A successful buyer's agent will be "in the know" as to current pricing and offer strategies that are winning homes this week. In addition to providing and preparing necessary forms required to present your offer; an agent with a reputation for smooth, amicable transactions will resonate with the listing agent, who'll ultimately be presenting your offer to the seller.
Build Your Cash Reserves
You'll need savings and/or lender allowed "gift funds" to help you win in a competitive market. Gone are the days of seller contributions toward buyer closing costs or other expenses. In addition to paying your own closing costs, a prudent buyer will need funds earmarked for down payment, non-refundable builder (or seller) deposits, due diligence fees, and/or earnest money or escrow deposits, depending on contract law in the state where you're buying the home. And for buyers willing to pay substantially above list to win a house, additional funds will be needed to cover the gap when the home doesn't appraise for contract sales price.
Get Pre-approval with Local Lender
Your agent will have lender recommendations. A lender can determine the best loan product that works for you, then get you pre-approved, before you start the shopping process. A lender pre-approval letter must accompany an offer; unless of course you have the ability to pay cash (and cash buyers will need a bank letter for proof of funds.) Choose a lender who can process and close your loan quickly (30 days or less) to make your offer standout.
Shop for Homes Priced 20% Below Your Budget
Many homes are selling above list price. In some of the most competitive markets, buyers are offering10-20% above list to win, even when they know the home won't appraise for the higher price. (They have funds in savings to cover anticipated shortfall.) Once you and your lender have determined the top of your budget, one strategy is to focus your search on homes priced 20% below your ceiling. This allows room to "offer up," above list, when you place your bid. As already mentioned, you'll need extra cash on hand to cover a likely appraisal deficiency, vs. the higher contract sales price.
"Over half of homes—51%—are selling for more than the asking price, a record high, according to new research data from the real estate brokerage Redfin." REALTOR® Magazine, June 2021
Prepare to Pay Above List
In the U.S. housing market of 2021, a majority of homes are now being sold above list price. A surplus of first time Millennial home buyers, combined with fewer re-sale listings, a backlog of new construction starts, and historically low mortgage interest rates, has created the biggest housing shortage of modern times. This is driving up prices. In addition to exorbitant fees paid, along with other concessions to sellers, buyers are bidding over list in an effort to win. And it works. Just be prepared to pay additional down payment to cover any difference between contract price and appraisal. Don't expect the seller to amend the agreed upon price, when the appraisal comes in lower. In some cases, buyers are waiving the appraisal contingency altogether, so that their offer stands out. Discuss your price offer strategy with your agent and lender.
Place Your Highest Offer 1st
When you find "the one," expect that it's also "the one" for several other buyers. Place your "highest and best" offer on first pass. It'll likely be your only chance to bid. When sellers receive a multitude of offers, a superior offer will stand out among all others. At that point, sellers are usually decisive, and rarely haggle back and forth with buyers. They choose the offer with terms most beneficial to them and take it. Don't risk losing "the one" because of your pride as a bargain shopper.
According to a May 2021 report from REALTOR® Magazine, "64% of buyers actively engaged in the homebuying process reported searching three months or longer...and 45% say they keep losing due to bidding wars."
Be Prepared to Bid on More than One Home
Even the best offer strategies aren't full proof. Your competition and their agents will continue to adapt their own strategies in an effort to win "the one." You may not win on the 1st, 2nd, or even 3rd home that you place an offer on. There will be other homes. In the current environment, buyers and their agents have to persevere. Rebound when you don't win and quickly resume your search. Adapt your strategy and be prepared to bid higher on the next "the one," that comes along. A dose or two of patience is also prescribed.
About the Author: Troy Grimes, is the managing member and broker-in-charge of the firm that bares his name, Troy Grimes Realty, LLC. An independently owned real estate agency specializing in residential home sales in the greater Raleigh, NC region, the firm actively represents home buyers and sellers in the #3 most competitive housing market in the USA. Source: Lending Tree via REALTOR® Magazine, "The 50 Most Competitive Housing Markets," - April 8, 2021
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