How to buy a house in a seller's market
Wednesday, 19 December 2018
When you're considering buying a home, the current state of the market is very important.
The term "buyer's market" refers to a period when housing inventory is high — there are a lot of houses on the market — and buyers can typically negotiate a better deal on a home.
Conversely, a seller's market is when inventory is low — there are fewer houses on the market — and buyers must compete for homes, which drives prices up.
“Because inventory is relatively limited [in a seller's market], the negotiation power rests with sellers. Because if they list a house that's in good condition, is well located, and is priced competitively, they're likely to receive multiple offers," says Danielle Hale, managing director of housing research for the National Association of Realtors (NAR). “That means potential buyers have to think not just about what the house is worth to them, but what other potential buyers might be bidding.
" Other factors affecting the negotiating power of buyers and sellers include the state of the local economy and job market, mortgage rates, and new construction activity. For example, in a desirable area with a strong local economy, good schools, and very little new construction activity, buyers will more than likely need to make their offer as appealing as possible.
Hale says currently, in most parts of the country, "supply has been tight because construction has never really recovered back to normal levels following the housing recession. It's improved markedly, but we're still below what we would consider to be a normal level of construction."
“People who currently own homes might put them on the market, so there's existing inventory on the market, but those people who are current owners who are selling often turn around and become buyers, so there's no real net increase in inventory unless we get more construction," she says.
How to gain an edge over the competition
While it's typically tough to negotiate a deal on a quality property during a tight market, there are some factors you can use to your advantage. The length of time a home has been on the market, for example, can work in your favor.
“Generally, the longer a home is on the market, the greater the discount from the listing price upon sale," Hale says.
She also recommends working closely with your real estate agent to research recent sale prices of comparable listings in order to make a more strategic and accurate offer.
One reason properties may linger is because they need work or they're cosmetically challenged. If you're handy, or can afford a renovation, you could possibly score a deal on a property that wouldn't appeal to buyers who don't want to update or renovate.
Finally, a lower mortgage rate typically enables a buyer to purchase a more expensive home, thus increasing their options. Because while rates are still currently low by historical standards and have been for some time, a dip of even a fraction of a point can translate into thousands of dollars in savings over the life of the loan.
Other tips from the NAR include:
1. Know your budget: Before you even start house hunting, know how much you can spend. When estimating your monthly payment, make sure you factor in taxes, insurance, maintenance, and other fixed costs. Sticking to your budget can help you avoid long-term financial problems. Therefore, you should be prepared to walk away if the bidding goes beyond what you can afford.
2. Know your “must haves" and “nice to haves": Make a list in advance of your deal-makers and breakers, such as school district, commute time, and home features. Remember, appliances, flooring, and paint colors can easily be changed. Location and school district obviously cannot.
3. Be nimble: If a property meets your needs, be prepared to make your offer and do any follow-up negotiating immediately. In a hot market, a seller will move to the next buyer if you don't act quickly. In order to increase your flexibility and negotiating power, consider getting pre-approved by your lender. This lets the seller know your mortgage will be approved and the sale will not fall through.
4. Work with a professional: It may be tempting to forego a real estate agent's fee by doing it all yourself. But in order to avoid regrettable paperwork mistakes and overlooking red flags about the property or the deal, you're better off going with a pro. This is particularly true for first time home buyers.
"They can help guide you through the process and give you a sense of what's going on, specifically in your local market. We talk a lot about national trends, but every market is different and has its own unique factors that are influencing the state of the market," Hale says.
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