Tips for Buying a Home in a Seller's Market
After a year of restrictions and limited mobility due to the COVID-19 pandemic, many renters and homeowners are eager to move and restart their lives in new surroundings. To their surprise, they discover home prices in many locations have risen, buyers continue to outnumber sellers, and there are few bargains to be found.
Sellers' Market
There is currently high buyer demand but low home inventory levels — making it a seller's market. Housing analysts further project a strong housing market in 2021 due to increased demand from buyers who delayed purchasing homes because of the pandemic. Due to increased remote work and virtual schooling, existing homeowners want larger living space, while apartment renters and condominium owners want single-family homes to reduce exposure to new virus strains. The ease of touring homes virtually from one's living room further increases the number of potential buyers.
While the general environment reflects a seller's market, the increased competition and higher prices do not exist in all regions of the country. Location matters. For example, homes in the metropolitan areas of Harrisburg, Penn., Dallas, and Nashville, Tenn., are very much in demand, while homes in Salt Lake City, Cincinnati, and Kansas City, Mo., have fallen in price.
Buyers in most markets are likely to find higher prices and increased competition. Making quick decisions and moving rapidly to negotiate and close a purchase transaction is a definite advantage in the current and near-term real estate market.
5 Tips to Successfully Buy a Home in Seller's Market
Even in seller's markets, home buyers can find the home of their dreams with a little effort and preparation. The following tips will guide you to a successful conclusion.
1. Set a budget
No one wants to buy a house that is a struggle to afford, a property that requires the owner to sacrifice other activities and assets that make life worth living. You must set a budget before buying a home.
Homeownership incurs obvious and not-so-obvious responsibilities. Your mortgage holder demands that you keep the house in good repair and fully insured. Neighbors expect that the property will be maintained with mown lawns, adequate fencing, and an acceptable exterior appearance to avoid decreasing their homes' values. Government regulators expect homeowners to pay taxes and follow health requirements.
These responsibilities typically require expenses in addition to mortgage payments. It is crucial to understand how much house you can afford, not how much you want. Lenders will consider your monthly debt payments to your pre-tax income as well as your credit history when approving a mortgage and calculating an acceptable down payment. In most cases, your monthly mortgage payment (with taxes and insurance) should be well under 28% of your income.
2. Expand your search area
Many home buyers get locked into a particular area where they want to live. It may be the neighborhood with the happy memories of a childhood or a setting representing a certain social standing or income. When they discover their first choice is too expensive or unavailable, they cease their efforts, overlooking other places that may be equally desirable but less expensive.
Do not be afraid to get off the popular path to find those overlooked jewels.
3. Get pre-approved financing
Home sellers want certainty and speed when they list their homes for sale. In many cases, they have chosen their next residence but cannot move until the sale of their current home. Making an offer that is dependent on getting financing is a turn-off for most sellers. Having a prearranged commitment to funding is a clear advantage in a seller's market.
Note that pre-approved (a written commitment from a lending company) is not pre-qualification. The latter is not a loan commitment, and lenders have no legal responsibility to extend a loan when called on.
Before seeking financing, take the time to learn about different mortgage terms and requirements and how they affect your monthly payments, down payment, and total costs over the loan period.
4. Work with an experienced agent.
In a competitive real estate market, an experienced real estate agent is often the difference between a successful transaction and a disappointing time waste. The right agent is well-connected to your area, knows the local market, and will help you get the best price and terms possible when buying a home.
An experienced agent recognizes that the best time to negotiate the price with a seller is after a home inspection, especially if repairs are unexpected or significant. Even a bad roof can be an opportunity to gain a buyer's advantage.
Some prospective home buyers elect to pursue home-buying activities on their own to reduce costs. In most cases, the strategy is "penny wise, but pound foolish." Real estate commissions are not established by law but by convention. Many successful agents negotiate commissions because happy buyers are likely to generate future sales by friends and family.
5. Customize an offer with limited contingencies
Buyers mistakenly open negotiations with a low-ball offer in attempts to get a bargain, even though they are prepared to raise the bid after the seller's response. In many cases, the effect is precisely the opposite of the buyer's intent; the seller either fails to respond or treats subsequent communications with disdain. In a seller's market, the tactic is self-defeating because higher at-the-market offers from other interested buyers are likely.
In a hot seller's market, buyers should be prepared to make an offer with little or no contingencies. It will make your offer more attractive. In such cases, trust your real estate agent and work with them to make the negotiation a win-win for both parties.
Final Thoughts
Although the market conditions make it more difficult for buyers, it doesn't mean buyers can't get a good deal.
As the housing construction industry recovers from the pandemic-caused economic downturn, the number of new houses will continue to rise each month. Sellers waiting on the sidelines, unsure of the future, are returning to the market, adding to supply. Finally, analysts expect record-low interest rates to continue. There may never be a better time to buy a house.
