Most of 2022 was what realtors call a seller's market. This means the number of available homes is low, but there are also a lot of people looking to buy. Together, these conditions usually increase competition, drive up prices, and make it even more difficult to buy a new home.
Experts seem to think the seller’s market will continue through the early part of 2023. But this doesn't mean buyers are totally out of luck. With the right strategies in place and a willingness to compromise on some points, you can improve the chances of your offer being accepted. Here are seven tips for buying a home in a seller’s market.
Avoid offers with constraints
Sellers are more inclined to take offers that are ready to go with no constraints on them. For example, most people want to sell their current home before they complete escrow on the new property. The seller, however, may not want to wait, and in a seller’s market, they probably don’t have to.
Essentially, any concession you ask of the seller, whether it’s help with closing costs or time to find alternative financing, can make your offer less appealing. And in a seller’s market, the seller has little to no incentive to deal with complications. To compete, you need to make a clean offer quickly and close without needing to wait on other parties or transactions.
Make an offer above asking
If you like a home, then chances are other buyers are interested in it too - especially in a seller’s market - and that pushes prices up. This means homebuyers may need to “make an offer that is higher than expected,” according to Stan Mead of Summit Home Buyers.
Depending on your location, you may not need to go very high over the asking price. You may show that you're a serious contender by offering just $2,000 above. That amount won’t have a major impact on your mortgage, but remember that you aren’t the only one competing for the property. Those that have the funds may offer $10,000 or more above asking price, and that may put the house too far out of your budget.
You can combat that, however, by looking for homes on the low end of your budget. That way, you have room to bid up without dipping into your savings.
Don’t ask for personal property
A seller’s market is no time for haggling. Trying to cut a deal for patio furniture, custom bookcases, and chandeliers gives the seller extra time to think, and that’s usually not a good thing when the seller has lots of potential buyers. Sellers want the sale to go quickly without hassle, and quibbling over personal property complicates the transaction.
Make a large deposit
Your deposit, called an earnest money deposit (EMD), is the first sign to the seller of how serious of a buyer you are. While you may only be required to put down one to three percent of the purchase price, the more you put down, the more serious you look. Sellers see a large deposit and assume you have the resources to fund the purchase, and this usually causes them to take your offer more seriously – sometimes even if it’s lower than other offers with a smaller EMD.
Waive the appraisal contingency
Waiving the appraisal is a powerful tool in seller’s markets, but you may only be able to use it if you have a mortgage funding the purchase. Prices in fast-moving seller’s markets are inflated because of the lack of inventory. This means that properties going for more than the asking price might be appraised for less, so your loan may fall short. By waiving the appraisal contingency, you tell the seller that you have full faith that you’re buying a property worth the purchase price regardless of what experts might say.
Pay in cash
One of the most stressful parts of escrow is waiting for the loan’s final approval and funding. If your loan is denied, then you don’t get the house and the seller has wasted time on a transaction that didn’t go through.
But according to Eric Nerhood of Premier Property Buyers, “By using an all-cash purchase, there is no waiting for the money.” Offering all cash puts you in the driver’s seat where you don’t have to rely on lenders to make final approvals. Seller’s love this and often take a lower purchase price when the transaction is all cash.
Offer 1 month of free occupancy
Chances are most sellers are also looking to buy a home, which means they’re struggling with the same market conditions you are. So while they’re getting plenty of offers for their home, they might not have a new home to move into. Offering a month of occupancy gives the seller breathing room to finish their purchase and vacate, plus your first mortgage payment isn’t due for a month after you close. Jason Gelios from Community Choice Realty calls this an “out of the box amenity” that gives you an edge when competing against similar offers.
Figuring out how to buy a house in a seller's market can seem impossible, but you can make it happen. Use these and other tips to get you through the home-buying process.
