How to Successfully Buy a Home in a Tight Seller's Market
With homes receiving multiple quality offers, buyers must move quickly and strategize to land the house of their dreams.
If you’ve decided to buy a home this spring, good luck to you. Your challenge will be not just finding a home you like, but also beating out all the other homebuyers who like it and want to make an offer on it, too.
The number of homes for sale is low nationwide, particularly in the price ranges desired by first-time homebuyers. The latest figures from the National Association of Realtors show that that there was only a 4.4-month supply of homes for sale in February, which is lower than the six-month supply that indicates a balanced market. One-quarter of February’s transactions were all-cash sales, according to the NAR, and investors bought 18 percent of the homes that were sold.
“A well-priced home in good condition will usually move very quickly and often have multiple offers,” says Mary Ann Hebert, broker and partner at Better Homes and Gardens Real Estate Bannon & Hebert in Middlebury, Connecticut.
That means that if you want to end up with a nice home, you need to be strategic. Expecting to find the home of your dreams by nonchalantly walking into a few open houses or perusing some online listings is not realistic in this seller’s market.
“In Raleigh, it’s insane,” says Tiffany Alexy, broker with Lucky Penny Realty in North Carolina. She advises finding a good real estate agent who knows when and how to negotiate. While everything is negotiable in real estate, sellers are often less inclined to deal if they have other offers waiting in the wings. Plus, if you’re a buyer, working with an agent usually costs you nothing because the seller pays the full commission.
These days, most would-be buyers come to an agent with a list of homes they’d like to see based on their online research. While that often serves as a solid starting point, a quality agent may find additional options. After buyers have seen a few properties, Hebert says skilled agents can typically gauge what they’re looking for in a new home and may have other properties lined up. “I advise them to listen to their Realtor,” she adds.
Victor Quiroz, a millennial agent who just taught a workshop called “How to Write a Winning Offer” to agents in California, advises those agents to go old-school and talk to the listing agent on the telephone because that will yield a lot more information about what the seller really wants. If you’re the client, suggest to your agent that he or she make that phone call and report back to you.
“Call. Don’t text, don’t email,” says Quiroz, from Berkshire Hathaway HomeServices California Properties in Covina. “You’ll get a lot more from a phone call than from a text message or email. … Don’t just send them a text. That’s not going to work.”
Knowing what’s most important to the sellers can be key to creating a winning offer. “It’s all negotiable,” Alexy says. “If you have a good agent, they’ll find out the motivations of the seller.”
[See: The Best Apps for House Hunting.]
Here are nine tips to help you get the house you want this spring.
Get your finances in order first. Several months before you intend to start looking, you should get copies of your credit reports to make sure you’re in a financial position to buy. Shop for mortgage financing before you start looking at houses. “I will not take anybody to see any house unless they have a preapproval letter or proof of funds,” Quiroz says. “I want proof of funds to show the seller.” Alexy says that some lenders are doing the underwriting before the house is under contract, which shortens the closing time and can be more attractive to the seller.
Move quickly once you find the house you want. That often means rushing out to see new homes within hours of them being listed and writing up an offer immediately if you like the house. “Things are gone in a matter of hours,” Alexy says. “You really have to move fast.”
Don’t make snap judgments based on listing photos. A house that doesn’t look appealing in photos could still be a great house. Homes being sold by an estate or homes with tenants inside often yield particularly poor photos. Plus, photos fail to convey the feeling of a home or the floor plan. “Unfortunately, the pictures don’t tell a true story,” Hebert says. “You have to be willing to look past some of the pictures.”
Be realistic about the inspection and repairs. The more competitive the market, the less likely a seller will be to make repairs, though some sellers may lower the price if the inspection reveals expensive defects. The purpose of the inspection isn’t to get the seller to repair every small problem but to find out for sure that the house is what you thought it was. “They’re not buying a brand-new home,” Hebert says. “What we are looking for are major defects we were not initially able to see in the walkthrough.”
Start with your best offer. A competitive market is not the right environment to negotiate a bargain. You may get only one chance to make an offer, and your offer may be one of several the seller will choose from. “You really need to come in with your highest and best,” Hebert says. Quiroz sometimes adds an escalation clause, offering to pay up to a certain amount in cash if the appraisal comes in lower than the purchase price. Another type of escalation clause offers a specified amount above the highest offer received, usually with a cap. Remember that the offer includes not only the price, but also your financing package and other terms such as the closing date and contingencies.
Write a personal letter to the sellers. Some sellers are interested only in how much money their home sale will yield, but others love their home want it to go to a new family that will love it just as much. If you really like a house, include a personal letter and a family photo with your offer. “It doesn’t work for everybody, but I have seen it work for many, many people,” Hebert says.
Make a big earnest money deposit. The expected size of the earnest money deposit, and the rules about when you get it back, vary by locality. But sellers often see a larger deposit as a sign that you’re serious about the deal.
Make a backup offer. Many prospective buyers don’t want to make an offer on a house that has a pending contract. But deals fall apart over inspections, financing and other terms. If you found the perfect house, you can make a backup offer that will put you in first place if the initial buyer walks away.
Consider waiving or shortening contingencies. Most offers are made contingent on the buyer getting a mortgage, the appraisal being equal to the purchase price and the buyer approving the inspection. Waiving any one of those contingencies can be risky, but may be the right move in some circumstances. Quiroz suggests shortening the time periods, such as promising to do the inspection or get financing sooner – assuming you can make those things happen. “If you can shorten your contingencies, you can make your offer look better to a seller,” he says. “Nobody wants to wait three weeks for a deal to fall apart.”