There are two types of markets in the real estate industry – the buyer’s and the seller’s market. A buyer’s market usually means lower prices and easier negotiations. A seller’s market often means tougher negotiations and more competition when buying a home.
Don’t worry, though, if it’s a seller’s market when you are ready to purchase a house, you can use the following tips to find a good deal.
Use a Real Estate Agent
When the market is tight, you have no choice but to use a real estate agent. As the buyer, you don’t pay the commission, so don’t worry that you cannot afford it. The real estate agent will provide you many benefits as you try to find a good deal on a home:
- Real estate agents often know about new listings quicker than anyone else. This gives you access to the home quicker and may give you the leg up on the competition, putting in your offer before a bidding war starts and you lose out on a good deal.
- Real estate agents know when a price is fair and when you are just paying more because demand is high and supply is low. No matter how much you want a home, there’s no reason to overpay for it. If this one doesn’t work out, there will be others. Your real estate agent can be your voice of reason.
- Real estate agents know what sellers want. Sometimes it’s not just top dollar. The right agent can read a seller and know what you will need to offer in order to win the bid. Sometimes it’s a fast closing or buying the home ‘as is’ without requesting repairs or credits. Making the right offer without too many contingencies can be the answer the seller wants.
Have Your Financing in Order
In a seller’s market, there are often multiple bids or buyers wanting the home. The seller is going to go for the buyer that has their financing in order, even if that means a lower price for the home. A guarantee that you have financing and will follow through on the contract is often worth much more to a seller than getting the highest price.
It doesn’t make sense for a seller to accept the highest bid from a buyer that never went through the preapproval process. Sure, the promise of a higher price sounds great, but if the buyer can’t follow through because he doesn’t qualify for financing, it won’t do the seller any good. Those being said, get your pre-approval letter before you shop for a home. Even if your bid is lower than others, you may come out the winner because you have the financing ready to go.
Don’t Ask for Too Much
If you want to offer a reasonable price for the home, keep your contract simple. While it makes sense to have some contingencies, too many will scare the seller away. The more straightforward the contract and the fewer ways you have to back out of it, the more likely it is that the seller will accept your bid.
Here’s an example:
You bid the asking price on the home, but you also make the contract contingent on the sale of your home, the approval of your financing, and the home inspection. That’s three ways out of the contract. If your home doesn’t sell by a specified date; if you don’t secure financing on time; or if the home inspection turns up with several problems, you can back out of the offer without any repercussions.
John bids $5,000 lower than the asking price on the home, but he doesn’t include any contingencies. He has an offer on his home already and he has his preapproval letter with very few conditions. His real estate agent walked through the home with him several times and they both feel comfortable that the home is in good condition.
The seller is more likely to take John’s offer, even though it’s $5,000 less than your offer. John doesn’t have an easy way out of the contract, so he is more likely to close on the home than you would be.
Earnest money shows a seller that you have good faith to buy the home. The more money you are willing to put down, the more confidence the seller will have in your offer. Don’t be stingy in this area – you are going to get the money back unless you back out of the contract. As long as you are sure about the home, offer a decent amount of earnest money, sellers like that confidence and may be more likely to choose your bid, even if it’s lower, over others that don’t offer the earnest money, aka confidence in buying the house.
Finally, you want to get personal with the seller. Remember, they are selling a piece of their life to you. Sometimes it’s not about the money, but about finding the right buyer. Sometimes just writing a letter to the seller, letting him know how much you want the home and what it will mean to you and your family is enough for the seller to take your bid over others.
The seller wants to know the home is going to someone that will love it just as much as they did. The last thing some sellers want is for an investor to come in and buy the home either to flip it or rent it out to others. That letter could make the seller accept a lower offer than others offer them.
Getting a good deal on a home in a seller’s market isn’t impossible. These tips can help you get the best deal while getting the home that you want. If it doesn’t work out, don’t forget, there are other homes out there that you can get for a better deal.