Since the global pandemic began, the real estate market has been in chaos. First, it was shut down with fears of no activity as the virus lingered. Then, the market soared as the pandemic showed people they shouldn’t put off buying their dream home.
As a result of all this activity, 2021 proved to be a home seller’s market, with 2022 expected to continue strong sales, albeit less than the records of the prior two years. A seller’s market is best explained as conditions in real estate that favor sellers, such as too few houses on the market for buyers to consider and high demand that leads to buyers bidding on property.
As home prices continue their 50-month trend of increases, buyers need to know how to navigate a seller’s market when looking for Nocatee homes for sale. Consider these ideas when you find yourself searching for a new home when housing inventory is low and demand is high.
Know the market
Before starting your home search, it is a good idea to understand the real estate market that you’re walking into. You should know if it is a seller’s market, or a buyer’s market, which is marked by a large inventory of homes for sale and low demand.
There is a technical definition of a seller’s and buyer’s market. It is determined by what is known as the absorption rate. To calculate the absorption rate, divide the number of homes sold in the month by the number of homes for sale at the end of the month. An absorption rate of 20 percent or higher is generally considered a seller’s market.
A real estate agent can also help you identify a seller’s or buyer’s market. Just make sure to ask them to show you the calculation they used to make that determination. For example, another indicator of a seller’s market is a high sales price to list price ratio. If a house sells for 103% ratio, that means it sold over the asking price and the market is hot, while a ratio of less than 90% is considered a buyer’s market.
Make your best offer first
In a seller’s market, buyers have little room to negotiate. They are also likely competing with other buyers to property. That means your first offer to buy needs to be your best. If you find a home you really like, don’t be afraid to offer over the asking price. Chances are someone else will, and they might out bid you.
Another point to consider is that real estate agents are often eager to accept the asking price if offered quickly, which can prevent other buyers from expressing interest. Real estate agents often don’t want to do more work to attract multiple offers that could increase the price by $10,000, which only translates to about $300 in more commission. So, buyers can take advantage of the fact that a quick, early offer at the asking price has a good chance of being successful.
Don’t be afraid to bid
If you really like the home and you have a chance to submit another offer through a bid, take advantage of the opportunity. Some real estate agents propose including the bid option in your initial offer. For example, when you submit the offer, add an escalation clause of 2% or more that will automatically increase your offer that much if a higher bid is received.
If you are in a particularly hot market, you may want to adjust your maximum target price to allow for higher bids you may have to make. Consider focusing on houses at about 85% of your maximum price to give yourself room to add more to your offer price.
Flash the cash
When you are really interested in a home in a seller’s market, consider offering more in earnest money to let the seller know how interested you are. If a typical earnest money amount is $2,000 in your area, consider offering $5,000 or $7,500 in cash up front.
Also, if you are able to buy quickly with cash and have no need for a mortgage to purchase the home, let the seller know. For some sellers, closing the deal quickly is a big incentive. It is also an advantage in that case if you can close the deal within a week, instead of the more typical 30-day period needed between a sales contract and closing.
Sweeten the offer
Some sellers prefer a clean transaction that doesn’t require contingencies, such as waiting for another home to sell or allowing time for the buyer to receive approval for a mortgage. If you already have a lender lined up and you have sold your existing home, this can position you well in a seller’s market to make an offer that waives the contingencies for each.
In some offers, a buyer can consider waiving any property inspection typically conducted before closing to determine if there are any unknown deficiencies in a property. Waiving the home inspection is another way to shorten the period before closing, but it likely won’t be possible if you have to borrow money for the purchase. Most lenders require a home inspection before a sale is closed.
Make it personal
Another option for buyers to consider during a seller’s market is to send the seller a personal message with the offer. Some buyers make videos featuring their family talking about why this is the perfect house. Some will write personal letters to sellers, explaining why this home is important to them.
The personal appeal is meant to distinguish you from other buyers.
Prepare to pay more at closing
One of the factors buyers deal with in a seller’s market is a low appraisal. Sometimes, home prices increase faster than home appraisals. That means a lender will only provide the borrower with a loan that complies with the appraisal. If the appraisal comes back lower than the sales contract price, then the borrower must make up the difference. This is another reason to limit your home search to properties that are under your budget.
You can navigate a seller’s market if you take the right approach. Start your home search on reputable websites, with more information here. And get ready to move quickly and decisively when you find the home that is perfect for you.