- Posted October 10, 2013 by
Five Tips for Buyers in a Seller's Market
Today's real estate market is seeing low inventory and very quick sales for the few good listings that do come available. For today's buyers it is tough. It feels like a stressful, hurried race. Buyers who are out actively looking for property may be disappointed in the current available inventory. Whenever a good home does come up, it might be common to have multiple offers, and multiple strong offers. Good listings come and go fast, and as a buyer if you wait too long you'll miss out.
It's also important for buyers to know that you may not get your way. The market has shifted, and the dynamics have changed. It does not mean that it's not a good time to buy, in fact it's a great time to buy. Today, pricing is moving back upward and there is a renewed confidence in the real estate market.
If you are a buyer, here are some tips to help you be successful in your home buying process.
1 - Be Ready to Move Fast
The first tip is that you must be ready to move quickly when the right property does come up. To start you'll be best served by hiring a great local Realtor® who specializes in your area of interest. With their help you can study the market in detail. You will want to know the active listings available and start to narrow down what is most important to you. There is often a little give and take when buying a home and your Realtor can help you weigh all options and figure out what features you desire the most. You can also spend a lot of time browsing homes online to see what is available, and how pricing differs for various neighborhoods and locations. The more you know about the different properties out there, and what you specifically want, the more ready you will be when the right fit comes up.
2 - Start with a Strong Accurate Offer Price
A large part of studying the market in detail, is studying current and recent pricing. You will want to compare the prices of active listings to the prices of recent pending sales and closed sales. The recent closed sales, and the actual selling prices will be the most valuable information for you to gauge the values of the available inventory. Do not use Zillow's "z-estimates", only use actual sold data from your Realtor's MLS (Multiple Listing Service). Knowing prices accurately is so valuable to you, so when the right property does come up, you'll know if it's priced too high, a bit low, or just right. And then you can better know what price to go with when you're ready to submit an offer. In today's market it's probably not going to work out for you if you submit a lowball offer. If the listing is priced well, you'll need to be accurate with your offer price, right from the start.
3 - Include a Large Earnest Money Deposit in Your Offer
An easy way to make a very strong impression on the seller is to submit your offer with a large Earnest Money Deposit. Earnest money is the deposit you submit with an offer, or promise to submit once an offer is accepted. First of all, be sure to include the earnest money with the offer. You can choose to agree to turn in the earnest money within a couple days of acceptance, but that is a weaker position. A strong earnest money deposit up front really does show your good intentions. Also, make your earnest money amount extra large. The average for earnest money differs across the country. For example, in Park City, Utah we typically see about 1-2% of the offer price. The great thing about earnest money is that in most cases it is fully refundable, up to your due diligence deadline. So as long as you cancel within your set timelines, you get the full deposit back. So there is no real risk. If you make the earnest money amount quite large, it appears as such a positive to the seller and really places you in a favorable view. If the property ends up in multiple offers, this is one aspect where you can easily set your offer well above the others.
4 - Set Short Deadlines in the Real Estate Purchase Contract
Sellers love to see a quick contract process. When writing an offer, the quicker deadline dates you can do the better. For due diligence we typically see 2-3 weeks allowed. If you can keep that at 2 weeks or maybe 1 week or ten days, that is more appealing to a seller. If the property looks to be in good condition and quite clean, you can assume the inspection should go well with not too many major concerns. So try to make it 10 days, or 1 week to get that done. If you run into problems, and have a valid concern, you can always write another addendum request asking for the necessary extra time. Often if there is a legitimate issue, the seller will understand and will grant the appropriate and fair extension. If you are doing a cash sale you can keep shorter timelines. If you are using financing, you will be very limited on the financing and appraisal deadlines dates, but you can at least keep short dates for the due diligence. Also, if the home is a full-time residence for the seller, the closing deadline date may not be able to be too quick, as they may need time to coordinate their move out. The best route for all of this is to have your Realtor consult with the seller's realtor to see what dates are most ideal to the seller. If you can make your dates appealing to the seller, you'll have a better chance of getting the deal.
5 - Pay with Cash or Include a Loan Pre-Approval Letter
The saying is true, cash is king. If you have the means to do a cash deal, for sure do it that way. Cash sales are much more certain to close, as you don't have the unforeseen issues that commonly arise out of mortgage underwriting. A seller will 10 times out of 10 prefer a clean cash deal. If you are like most of us and cannot do cash, you must have a pre-approval letter to demonstrate your ability to obtain the financing. Submitting your offer with a pre-approval letter from your lender again shows your commitment to the purchase, and shows your ability to make it through closing. An offer that is in need of financing, but does not include a pre-approval letter, is just too uncertain for a seller to consider.
Your Realtor is Your Best Guide
The main takeaway here is to engage the process and educate yourself. Our best recommendation is to take advantage of your Realtor's expertise. If you have a good Realtor, they can inform you of the current market mindset and trends, and can then help direct you in writing the best offer you can do. Your Realtor is there to help you and look out for your best interests. You may not get everything you want, and you may not get the property if you end up in multiple offers, but you can know you made your best effort.