3 Ways a Buyer Can Prosper in a Hot Sellers Market
The market right now is HOT. The combination of low inventory (think record low, never been this low, not since 2012 low), and low interest rates (below 3% in some cases!!) have caused everyone who does not own a home to re-evaluate their rent vs. own strategy. If ever there was a time to buy a home, it is now. But, the big question for many buyers is, is it really a good time to buy?
The unfortunate reality in Orange County is that it is not going to get any easier to buy a home any time soon. While in some cases waiting will help you build on the down payment you are saving, in most cases, homes will only get more expensive and more out of reach. Homes are continuing to appreciate due to the unprecedented demand, especially on homes below $1M. The economy is hurting right now as stay at home orders have been in effect and many small businesses have taken a hit. So what happens when the vaccines are distributed and the economy starts to pick up again? The already bustling housing market will continue to appreciate. The Fed is unlikely to raise interest rates very quickly as well which will keep demand up as long as that trend continues. There is a strong chance that interest rates will rise slightly as the economy improves throughout the year though which will not necessarily work in a buyer’s favor.
The current housing market can be very frustrating with multiple offers of similar caliber often competing for the only home on the market in a community. There are a few ways a buyer can prepare to make their offer stand out when the time comes.
1. Have your proof of funds & pre-approval ready
Find a lender that is a good fit for the community you are looking to buy in and for your particular financial situation. (If you need assistance, I know a few that I can recommend),
For certain areas, there are lenders who have special programs for different types of buyers or different areas that can offer down payment and closing cost grants. These are often offered in areas that are under gentrification which can be a great investment for a first time buyer.
Others offer competitive rates for banking and opening retirement accounts within a single institution.
No matter which lender you choose, start the process early. If the lender has taken steps to review your file with an underwriter it will be what is considered to be pre-approved. This is an important distinction from pre-qualified which is usually offered with a verbal assessment of a buyer’s financial situation.
A pre-approval shows the seller that the buyer is serious and very well qualified to move forward building a strong case to choose their offer.
2. Put your best foot forward
A good agent will instruct you to offer the best price from the start. This is not the time to think you are going to get a deal. If the home you want is in a hot area and is under $1M but is just a little high for the range you really need to be in, it might be best to move on to the next. Homes are going for $20k, $30k, $40k over asking right now. It’s just the environment we are in. The good news is, if you plan to stay in the home for 10 years, you will recoup your investment so don’t sweat it.
This also means reducing contingency periods. If you have a pre-approval you should be able to close in 30 days. If you have cash you can offer a shorter closing period which can often be appealing. Cash buyers do not require an appraisal or loan contingency usually. If you are getting a loan you will want to talk to your lender about keeping that timing as short as possible but it should remain reasonable.
For the home inspection contingency, consider what you really want to review and how long it will take. 7 days in most cases is plenty of time to review disclosures and meet with a home inspector. Keep in mind that the contingency is not removed until you sign a form stating you are removing it. The shorter the contingency shows a more serious buyer.
Lastly on this point, write a letter. I cannot state this enough. It is so important for the sellers to empathize with you and why you want this property. As fair as we try to be, it is still a heart strings game at times. Sellers want to know that their home is going to be put in good hands. Even if you plan to tear down the home and start from scratch with a McMansion tell them why you chose this location, send a photo and plead your case. I have helped many a buyer win just by putting pen to paper.
3. Offer non-price factors
If the sellers need a few months to move out, give them all the time they need. Be flexible and communicate. This is what separates a good agent from a great agent. My job is to find out what those factors are and help the buyers understand that flexibility is what will help them stand out.
The best thing you can do is to be patient. It can be frustrating and outright painful when you’ve been rejected 3, 4, 5 times. Just keep in mind that there will be another and as long as you prepare with the steps I’ve mentioned above you will be ready. No go forward and get that home and if you need help I'm just a call away!