How To Be A Competitive Buyer In Today's Housing Market
on Wednesday, May 5, 2021
Let’s not sugarcoat it. If you’re buying a home this year, you’ll probably face some serious competition. Homes are going under contract almost as soon as they’re hitting the market, and with very little inventory to choose from, they’re also selling well above list price.
Why is the housing market so hot right now? In short, it’s the classic tale of demand outpacing supply.
The pandemic forced many people to rethink their living spaces, while others who originally planned to buy in 2020 put off their home search until this year. At the same time, millennials are reaching prime homebuying age and continuing to enter the housing market in droves.
Historically low mortgage rates
Already-high demand grew even stronger as rates dropped significantly over the past year, hitting an all-time low in early 2021. While rates are heading back up, they’re still extremely low.
The nation’s housing supply is at record lows. As of February 2021, existing-home inventory dropped 29.5% year-over-year, leaving a meager 2-month supply of homes on the market. A 6-month supply is considered a healthy balance for buyers and sellers.
Tips For Getting Your Offer Accepted
In a market like this, the best advice I can give you is to Be Aggressive, B-E AGGRESSIVE! The key is to lead with your best offer. Don’t expect the seller to go back and forth negotiating with you. Remember, they have the upper hand. Make an attractive offer from the get-go to ensure yours doesn’t get tossed aside.
Know what you want.
Decide on your list of wants, needs, and deal-breakers ahead of time to avoid decision fatigue and allow yourself to move quickly. Once a home comes on the market that fits your criteria, be prepared to view it and make an offer immediately.
Make an offer above list price.
As of April 18, the average sale-to-list price ratio rose to an all-time high of 101%, meaning homes sold 1% over asking price. Offering below list price is just not an option right now. If you know this could be a potential budget-buster, look for homes below your price range so you have room to offer up. This is where a great real estate agent is an invaluable asset. Your agent is there to help you get the home you want at the right price point, but they’ll also help set realistic expectations, whether that means walking away or going in with a higher bid.
Contingencies, such as the appraisal or inspection, exist to protect the buyer, but in a bidding war, many buyers are foregoing them to seal the deal. This can be a risky move, though, so talk to your agent about the pros and cons.
Negotiate on timing.
Does the seller want a quick closing? Include a closing date in your offer letter. Does the seller want to live in the property for a few weeks after the sale, until they can close on their next home? Be flexible on the move-out date.
Put more money down.
If the home appraises for less than the agreed-upon sale price, (which can happen when homes are selling above list price), you’ll need extra cash to make up the difference between the sale price and the loan amount. A larger down payment signals that you have cash on hand to do this and are more likely to have your financing approved, whereas a buyer with a smaller down payment may have to walk away from the deal.
Include an escalation clause.
This essentially tells the seller that you’ll beat the price on other offers, up to a certain amount. For example, you could outbid other buyers’ offers by $1,000, up to a max price of $350,000.
Write a letter to the seller.
It may sound odd, but making a personal connection with the seller could push your offer over the finish line. If you’ve tied with another offer in terms of numbers, creating that emotional appeal could help the seller decide between you and the other buyer.
Should You Wait To Buy Until Next Year?
Buying in a competitive market can be intimidating, but it’s not impossible! If you’ve thought about putting off your home purchase until the competition dies down, consider this: While more inventory could come on the market between now and next year, it’s not likely to be a buyer’s market anytime soon. Plus, home prices and mortgage rates are going up. That means if you wait until next year, you could end up spending a lot more for the same type of house.
Fortunately, mortgage rates are still historically low right now, which can offset affordability concerns caused by rising home prices. If you’re serious about buying, my recommendation is to lock in a low rate as soon as you can.
Contact a Mortgage Banker today see how you can get pre-approved and start your homebuying journey!
Sources: Redfin, Freddie Mac, National Association of REALTORS®
*This is not a commitment to lend. Pre-approval is subject to certain conditions. Not all borrowers will qualify.