Supply and demand is one of the most fundamental concepts of economics. It’s basically the backbone of the real estate market. When the number of homebuyers exceeds the number of homes available for sale, it’s known as a seller’s market. This means that the seller in a typical real estate transaction has the upper hand. If you’re the buyer, you have to act fast when you find the home you want. Sometimes you’ll end up having to offer more than the asking price, especially when a multiple-offer situation arises. So how do you, the buyer, cope in this type of market? How do you know you’re getting the best deal possible on your future home?
Get approval. Before you even begin to think about shopping for a new home, get approved for a mortgage. We always recommend that buyers obtain pre-approval before making an offer on a home, but in a seller’s market, you need proof that you can afford what you’re offering. Putting your money where your mouth is—literally—shows buyers just how serious you are about buying their home.
Be prepared to shop a little longer. In a seller’s market, inventory is lower, which means houses get snatched up pretty quickly. You might have to scale back your wish list. To get a house in the specific neighborhood you want, you might have to compromise on square footage or the need to renovate. Likewise, if you have certain musts on your list like number of bedrooms and yard size, you’ll need to broaden your search beyond just a few key neighborhoods.
Be ready to waive contingencies. When the seller has the upper hand, they really don’t have to give in to any contingencies you write into the offer. If you bring them an offer that’s $10,000 over asking price but it’s contingent upon financing, a home inspection, and an appraisal, and you ask for help with closing costs…well, you’d better be prepared for a counteroffer or a flat-out no. Even if another offer has a lower dollar amount but has fewer or no contingencies, they’re more likely to take that one.
Don’t even think about lowballing. As we’ve already mentioned, buyers in a seller’s market have to act fast and be prepared to offer more. There will still be some homes that are overpriced, but in most cases, sellers who actually do have the upper hand want to see at least a full price offer. Often times there will be multiple offers on a home, resulting in a bidding war, which means you need to bring your highest and best offer to the table. In addition, a higher amount in earnest money shows the buyer just how serious you are. Just be careful not to get in over your head and saddle yourself with a mortgage payment you might not be able to keep up with for years to come.
The key takeaway here is to be prepared for anything. Make sure to get pre-approved for financing. Know you might have to pay more than listing price. Be ready to act quickly, and buying a home in a seller’s market won’t be as difficult as you think.