Despite an initial slowdown at the beginning of the pandemic, the real estate market has remained a seller’s market. This means that there are more interested buyers than there are available homes for sale. As a buyer, it may be harder to find your dream home, and once you find it, you may be up against some stiff competition.
However, you can successfully buy a home in a seller’s market (millions of people do!), but you should follow these tips to make your offer stand out.
Find a great agent
Hiring a great real estate agent is an essential step to buying a home any time, but it’s even more important when you’re in a seller’s market.
In this type of market, homes tend to sell fast because many buyers are interested in them. A real estate agent has the tools necessary to help you find available listings as soon as they hit the market — and sometimes even before they hit the market.
Additionally, a good real estate agent has the experience necessary to help you put together a competitive offer. And if you’re a first-time home buyer, your agent will likely also help you through the entire process, from your home search to closing and beyond.
A good agent, discount or traditional, will help you find the best deal and make the best offer in a seller’s market.
Get preapproved for a mortgage
A pre-approval from OVM gives you a concrete number of the loan amount you’ll be approved for. To get preapproved, you’ll complete your application and work with your Loan Officer to submit detailed financial information including pay stubs, tax returns, and bank statements. Your Loan Officer will also check your credit. This gives you the confidence of knowing exactly what you can borrow, and having a fully approved mortgage shows sellers that you’re a qualified buyer, which makes your offer more likely to be accepted.
Now, let’s take a closer look at three potential benefits of getting fully approved before placing your bid on a house.
3 key benefits of a fully approved mortgage
1. Shows you’re serious
Backing up your offer with a fully approved mortgage shows sellers that you’re a serious, prepared buyer. It gives them confidence that you’re as motivated to buy the home as they are to sell it — and that you won’t get cold feet at the last minute.
2. Instills confidence
Home loans fall through fairly often, and this is a major concern for sellers. In 2018, around 10% of mortgage applications were denied. If you qualify for a fully approved loan, your offer will be attractive to sellers because it’s secure. Since you’ve already been through the mortgage underwriting process, your loan is far less likely to fall through at the last minute.
3. Speeds up the process
It can take around a week to complete the underwriting process – possibly longer if there are any obstacles. This prevents most buyers from doing a quick close. With a fully approved loan, however, you can offer sellers a ready-to-close offer and get straight to the escrow process, presenting an advantage over buyers who still need to go through the underwriting process.
Set a budget
Next, it’s important to set a budget. If you don’t have one, it’s far too easy to get caught up in a bidding war and spend more than planned. Even if you do end up finding your dream home, it’s a smart idea to set a maximum amount you’re willing to spend — and stick to it.
Use a monthly budget to come up with the maximum housing payment you feel you can afford. Then, use a mortgage calculator to find the maximum loan amount you can receive with that monthly payment.
If you don’t have a clear budget before you make an offer, you might end up paying too much.
Understand the bidding process
To that end, it’s a good idea to go over the bidding process with your agent before you even think about submitting an offer.
You’ll want to familiarize yourself with how the bidding process works. For example, many first-time home buyers don’t realize that sellers aren’t required to counter their offer. This step is entirely optional, which is why it’s so important to put your best foot forward from the start.
It can also be helpful to have your agent tell you about the various components that go into making an offer. Put simply, there’s more to an offer than just how much you decide to pay for the sale price. Once you have a firm understanding of everything that goes into an offer, you’ll be better equipped to put something together that stands out from the crowd.
You must understand the bidding process to win a bidding war.
Tips for winning a bidding war on a house
Talk over the following strategies with your real estate agent.
1. Use an escalation clause in your offer
Adding an escalation clause into your offer allows you to outbid other buyers by a certain amount of money automatically. You can also specify a final sale price that you won’t go over so you don’t end up offering more than you can afford if the bidding war really heats up. This is a great way to show sellers how serious you are and how much you want the home.
2. Write a personal letter about why you want the home
If your offer comes close to another bidder’s, writing a compelling letter to the seller could be enough to push yours over the edge. Many sellers still feel an attachment to their home and want to see it sold to someone who will take pride in it. If you write a letter explaining why you want to live there — to raise your kids or be closer to family, for example — it may tilt the scales in your favor.
3. Waive contingencies
In real estate, contingencies are anything the buyer needs to happen for the transaction to move forward. Typically, there are contingencies around securing a mortgage, getting a satisfactory appraisal, and doing inspections. If anyone of those things falls through or does not occur, you have the option to walk away from buying the home with your earnest money deposit, or the “good faith deposit” that you gave the seller when you first submitted the offer on the property, in hand.
From the seller’s perspective, offers with contingencies are less than ideal. Obviously, the fewer chances that you have to walk away from buying the home, the more secure the seller will feel. That said, as the buyer, you have the option to waive some of your contingencies to make your offer more competitive.
You’ll want to proceed with caution, though. Once you waive contingencies, you agree to accept the home, even if something falls through. This could mean taking the home in as-is condition, even if the inspector finds big issues during the home inspection, or even being responsible for buying the home if you’re unable to secure a mortgage.
With that in mind, it’s important to make sure you truly understand what each contingency means so that you’re aware of the risks that waiving each one entails.
4. Make concessions
Finally, be prepared to make some concessions, especially when it comes to small details such as the settlement date. Again, these details are points of negotiation and showing that you’re willing to be flexible may put your offer over the top in the seller’s eyes.
The best thing you can do is have your agent call the listing agent and ask if there are any particular transaction details that are important to the seller. Then, if at all possible, make sure to work those details into your offer.
You could even offer to pay some of the seller’s closing costs. Taking some cost burden off the seller’s plate would make your offer even more attractive.
The Bottom Line
Buying a home in a seller’s market may not be easy, but it can be done. By making sure that you hire a great real estate agent who can educate you on the bidding process and help you make concessions to the seller, you can do your best to ensure that your offer stands out from the crowd. With that in mind, use these tips to help you get the process started.
As always, we’re here to help. If you have any questions regarding buying a home in a seller’s market, give us a call, or start your application online today.