In case you’ve been living under a rock, nationwide we are living in a seller’s market. If you aren’t familiar with what a seller’s market is in real estate, it’s when the inventory doesn’t meet the demand for the buyers, so there is intense competition to secure a property. Obviously selling in a seller’s market is ideal! Everyone wants to buy in a buyer’s market (primary reason is because home values plummet during this time), and they want to sell in a seller’s market (primary reason is because home values soar during this time). Sometimes the stars align that way, but sometimes, life happens, and we find ourselves buying in a seller’s market.
So if that’s you and you are ready to pull the trigger on buying a house, there are a few things you need to keep in mind.
Please note, these reminders come from the vast experience of Realtors, my personal experience of buying (& selling) in a seller’s market, and just plain common sense.
1. You HAVE to compromise.
Notice I didn’t say you MIGHT have to compromise. You HAVE to compromise. Maybe you compromise your budget. Maybe you lose that coveted 4th bedroom. Maybe you downsize from 3,500 sq. ft. to 2,800. Maybe you have to update appliances & paint instead of getting a turn-key house.
Your budget will determine how much you have to compromise. The smaller the budget, the more you need to compromise. Why? Because the smaller the budget, the more competition.
IF YOU ARE UNWILLING TO COMPROMISE, YOU DO NOT NEED TO BUY A HOUSE RIGHT NOW. PERIOD.
2. Listen To Your Realtor
[Hopefully] Your Realtor is experienced and knowledgeable in the real estate market in which you are buying. They should know the pulse of the market, the stats of the area, and how the market is trending. Knowing all of that, please know, your Realtor is not just a person to write a contract. They are a licensed, educated, and experienced professional, and if they are telling you something (even if it’s not what you want to hear, LISTEN). If your Realtor advises that if you want a chance at a property, you will need to waive asking for closing cost assistance, pay full price, and ask for no concessions, then they know what they’re talking about. If the set of facts they are giving you don’t sit well with you, then maybe that’s not the area you need to be looking in (or maybe you aren’t ready to buy in a seller’s market).
There is nothing more frustrating as a Realtor than when I advise a client that they can’t cut the price by 30% when a house has been on the market less than a week, and then they are shocked when the offer is flat out rejected– not even countered. My job, any Realtor’s job, is to give you my professional opinion. When a client opts to ignore the professional’s advice, they are making the process longer and more difficult for all parties involved- including themselves.
IF YOU ARE UNWILLING TO LISTEN TO A REALTOR, YOU AREN’T READY TO ENTER THIS INSANE SELLER’S MARKET.
3. Have Your Finances In Order
Just about any seller worth their salt will require a proof of funds (cash offers only) or pre-qualification letter from a lender before responding to an offer. If you can’t provide one, do you know what most sellers will do? Reject the offer. They want the assurance that if they choose you (and at times that means choosing you OVER other offers), they want to know you are financially capable. There is nothing worse than a seller accepting an offer, and two weeks into the deal finding out the buyer wasn’t approved for a loan. Before you ever look at your first house, you should have not only consulted a lender, but have a preapproved amount.
In addition to having the loan ready to go, you should have already gathered the funds for a down payment (AND closing costs!). The amount of the down payment is determined by the loan you get AND the price of the house, so that’s why it’s essential to consult a loan officer. If the lender says you will have to have $5,000 for a down payment and closing costs, and you only have $4,000, then you are either not ready to buy or you will have to negotiate with the seller to help….immediately weakening your offer amongst the crowd.
IF YOU HAVE NOT EVEN SPOKEN WITH A LENDER, THEN YOU ARE NOT READY TO START SHOPPING FOR HOUSES.
4. Time Is Not Your Friend
The lower the budget, the truer this statement is for home buyers. The first time home buyer price point has INTENSE (SUPER, SUPER INTENSE) competition right now. It is not unusual (actually becoming the norm), for a house to hit the market first thing in the morning, have multiple offers by lunch, and sold by end of business that same day. Going back to #2, if your Realtor calls you and says “Leave now! We have to see this house right now if we want a shot,” then you drop whatever you are doing. In this intense seller’s market, there is no downtime for “Well, I need to go grocery shopping” or “My in-laws wanted us to come over for game night.” When you’re literally competing for a house, you have to be the first one there, or pretty darn close to the first person, if you want a chance of seeing it before it goes under contract.
If you have an extremely hectic schedule due to work, and you can only look for one day a week for a few hours, you have created numerous hurdles for yourself– and the Realtor. If you don’t have ample time to drive around and look at houses, maybe now isn’t the best time for you to buy a house. We have a saying in our office, “The house you looked at today and are going home to ‘sleep on it’ sold tonight to someone that looked at it yesterday and ‘slept on it’ last night.”
IF YOU DON’T HAVE TIME TO LOOK FOR HOUSES, YOU DON’T HAVE TIME TO BUY A HOUSE.
5. Deals Are NOT To Be Had On The Open Market
As a house flipper and a Realtor, I frequently get clients that want a house to flip too. I love their enthusiasm and desire to invest in real estate, but almost every single time, when I start probing more about the fixer upper they want, I get responses along the lines of “painting walls, maybe change out the light fixtures or update appliances” and always followed up with “and make me a lot of money.”
And that’s where I have to tell them- “Don’t shoot the messenger! But, those don’t exist (and if they did, I probably already bought it!).”
What they are describing is called a Lipstick Flip. Flip #6 was a lipstick flip, and if those do appear on the open market (the MLS), there is intense demand and competition (from homeowners and investors), & you will pay a premium for that flip and greatly narrow the margin for profit. If your goal is to “find a deal,” then you do NOT need to look on the MLS or open market. The true deals are found off market (and where I’ve started snatching up properties). Of course, off market deals like foreclosure auctions have HIGH risk. And out of the countless clients that have told me they wanted a fixer upper, do you know how many actually ending up buying a true fixer upper to flip? ZERO. They realize that the actual deals on the MLS open market require substantial work (not just paint and light fixtures), and they are too scared to venture into off-market deals.
IF YOU ARE LOOKING FOR A DEAL, YOU’RE LOOKING FOR A UNICORN.
6. Be Prepared To Say Goodbye To Your First Love
The most common analogy I give when talking about buying a house is dating and marriage. At some point in the process (I hope), you’re going to meet a house you LOVE. It’s love at first sight. It’s going to be a game changer.
At least in your mind. The start of the end for relationships, right?
In this market, it’s rare to get the first house you make a bid on. It’s rare you marry the first person you went on a date with. Sometimes it happens, but it’s the exception. With the intensity of this market and the massive amount of competition from other home buyers and investors, be prepared to not get your first true love.
And this is something important remember– If you’re trying to find a spouse, and all you’re doing is talking about your ex, guess what’s going to happen with the new relationship? It won’t work. It could’ve worked. It could have been a good thing, but you were too hung up on the ex. If you can’t get over losing out on the first house you loved, then none of the other houses will cut it– so you are wasting your time and your Realtor’s time. And how is that fair?
IF YOU’RE HUNG UP ON THE HOUSE YOU LOVED & LOST, YOU’RE NOT READY TO MOVE ON IN THE HOME BUYING PROCESS.
7. Don’t get in over your head. NO MATTER WHAT.
In a market with such crazy competition, it’s easy to get caught up in it all. Have you ever been to an auction? You see something you like, and you tell yourself, “I’ll bid on that! I’m going to stop at $30.” Well, $75 later, you’re the proud owner of a set of mismatched china dishes. When you’re in the heat of the moment and the bidding is going back and forth, and all the eyes are on you, it’s so easy to get caught up in it all [and your desire to win], that you paid $75 for mismatched dishes.
Of the last 4 offers I’ve written for clients, ALL of them have been in a multiple offer situation. A bidding war.
It’s fast. It’s intense. All eyes are on you (figuratively speaking). And it’s easy to lose reason and up your bid to win. And that’s what I’m seeing. People are more than willing to pay over list price….over appraisal price…just to get the house they want. Or just to get a house they kind of like. HEAR ME: THIS IS HOW CRASHES HAPPEN. Know your limits. Know the value of the home. And make sure you have a level headed buyer’s agent that will keep you grounded and not fan the flame of winning the bidding war.
IF YOU CAN’T WALK AWAY, THEN YOU’RE NOT READY TO SHOW UP.
When I first start the home shopping process with clients, they are so excited to get started. In all honesty, that excitement quickly fades to frustration. This market is tough, and it’s not friendly to buyers. But knowing what you’re up against at least makes the process bearable….even if you don’t get an accepted offer until 10th try. Whatever you do, get a buyer’s agent Realtor that you can trust. He or she will be your best asset in this crazy market.