How to Buy a Home in a Competitive Seller's Market
If you’re trying to buy a home right now, you know how tough it is. Have offers from other buyers beaten your offer? Perhaps the home you planned to look at is already under contract. If this sounds familiar, here are 6 tips on how to buy a home in a seller’s market, and make an offer sellers will accept.
Get pre-approved for the mortgage.
Taking the first step and getting your mortgage pre-qualification, or better yet, pre-approval (there’s a difference), shows the seller that you are a serious home buyer and that takes the uncertainty of loan approval off the table. Be sure to have the pre-approval letter with the offer amount and date of contract on it.
Shop under budget but be prepared to pay more.
When you’re trying to buy a home in a seller’s market, most homes are selling at or above listing price. If your budget and loan pre-approval is for $250,000 and you’re only looking at houses listed at $250,000, chances are you’re going to be disappointed more than once during the process. With that in mind, look at homes under your range, allowing yourself a cushion to make a higher offer if you get into a competitive bidding situation.
Unfortunately, this market doesn’t allow time to “sleep on it” overnight before deciding. Homes are moving lightning fast. In many in-demand areas and lower price ranges, some are only on the market for a matter of hours. Mentally prepare yourself to make a quick decision. If you find a home you love, work with your agent right away to get an offer on the table.
Make a strong offer.
When trying to buy a home in a seller’s market, there’s little room for negotiation, or getting a “deal” on a property. If you’re certain this is the home for you, go in with your strongest offer. If you have room to increase the offer price, consider using the escalation clause.
An escalation clause allows you to set a maximum amount you will pay for a house. If you’re in a competitive situation, it allows you to increase your offer in incremental amounts (say $500 or $1,000) to beat a competing offer. You should always ask your agent if using an escalation clause is the right strategy for your particular situation. You do have the advantage to be able to increase your offer in incremental amounts, potentially beating out other offers. However, using this strategy could lay all your cards on the table (knowing that you are willing to pay a higher price, a seller’s agent may advise their clients to counteroffer if there are no other buyer offers on the table). This is where relying on the guidance of your agent is key.
Make an offer that is simple and clean.
When you have a number of things to get out of the way before you can purchase a home, seller’s may not look as favorably on your offer as they will on others, even if the purchase price on the offer is the same. Right now, simple and clean is the way to go. If you can, sell your home or at the very least have it under contract before making an offer. If you can pay cash, consider that as an option and if not, absolutely prepare your financing beforehand. Removing contingencies appeals to the seller because there are now fewer chances for the deal to fall through.
Don’t ask for everything AND the kitchen sink.
if they are not listed as conveying with the property, this is not the best time to ask the seller to give you the refrigerator or washer and dryer. This is not the time to ask for their patio furniture or to paint the door a different color. If you’re asking for closing costs plus a lengthy list of other requests, you may find the sellers will decline your offer. Legitimate repairs uncovered during the home inspection are one thing, but if you’re asking for every little detail, a less demanding offer may win over yours. Again, rely on the guidance of your agent.
A few other tips
Plan on every home you tour being under video surveillance because today, many (if not most) are. You may wonder why that’s important. You don’t want to be the buyer that called dear old Aunt Edna’s antique purple and mauve chair “tacky” while you thought you were alone in the room. If the seller sees that on video, you may already be at a disadvantage. Even if it was tacky, save the commentary until you’re out of the home.
Don’t put the full amount of your loan eligibility on your pre-approval letter, only the current offer amount and date. While you may be eligible for more than the amount on your offer, there’s no need to disclose that information. Sellers may look on this negatively or try to negotiate a higher price based on your eligibility amount.
Removing the home inspection can certainly streamline and simplify your offer, but this comes at a risk. Few REALTORS will recommend doing away with a home inspection. Not only does it reveal defects, but also serves as a wealth of information about the systems of the home. If you choose this route to gain an advantage over competing offers, it’s still wise have a home inspection ASAP after closing. You’ll gain loads of information as well as a heads up on any issues that you’ll need to resolve.