When you’ve decided to buy a house, you’re putting a lot on the line. Whether you’re new to the homebuying process or not, it can be tricky to navigate the housing market – especially a seller’s market. With new listings of homes for sale down 12% in January 2021, for homebuyers, the days of ample choice and time are over, and it’s clear we’re in a strong seller’s market.
In this type of market, time is of the essence, and you want to enter it prepared. Use these 10 home buying tips to position yourself to not only find the perfect home, but also stay ahead of the competition, and buy when the timing is right.
1. Get pre-approved for a home loan
It’s always wise to seek a mortgage pre-approval before you start searching for a house. When you’re buying in a seller’s market, that pre-approval is essential. When a seller receives multiple offers, which is common these days, the difference between a winning offer and one that’s declined can hinge on the buyer’s approval status. A pre-approval also helps you understand what you can afford for a mortgage payment and the home price range you can realistically consider.
2. Shop around for the lowest mortgage rate you can find
According to a recent Redfin report, the median home-sale price increased 17% since 2020, which is the largest gain in at least 5 years. Fortunately for you as a homebuyer, mortgage rates have been sitting at record lows. Low rates help you get into your new home with a more affordable mortgage than you would have obtained when the rates were higher. Take time to shop around for the lowest mortgage rate you can qualify for.
Understand, however, that the rate you qualify for will be affected by your credit score. If you have concerns about your credit score, talk with a credit repair professional to come up with a path to improve your credit. It could take several months to a year to improve your score, but lenders will offer you more favorable mortgage rates.
Ways you can improve your credit score can include:
- Paying down debt to improve your debt-to-income ratio
- Saving more so you can make a bigger down payment
- Clear up any errors in your credit history
3. Work with an experienced real estate agent
Having a reputable, experienced real estate agent on your side can help you significantly in a seller’s market. A good agent can speed up the home search, help you stay on top of new property listings, and schedule your showing immediately to get you at the front of the line.
An agent well-versed in the challenges of a seller’s market knows how fast things can move and can help you assemble a firm, competitive offer letter as soon as you find a home that fits your criteria. In a seller’s market, you don’t have the luxury of time to go home and sleep on your decision. If you like the home, you need to make an offer quickly. Your real estate agent should be an expert negotiator to help you navigate any counter-offers from the seller.
4. Customize your offer to the seller
While a seller’s market elevates prices, not all sales are contingent on price alone. Your real estate agent can help you uncover the real motivation behind the seller’s decision to sell. When you develop your offer to align with the seller’s motivation as directly as possible, you’re more likely to arrive at a win-win situation that’s not based solely on price.
Ask your agent to help you customize your offer letter. This may take a little more digging on the agent’s side, but this may result in an offer that provides the seller with precisely what they want — making your offer the winner.
5. Don’t bother with a lowball offer
Of all of the home buying tips, this one should be a no-brainer. In a seller’s market, an extremely low offer in pursuit of a “deal” is a waste of everyone’s time. Sellers have plenty of buyers and offers to consider. Your best chance of closing a deal is to present your best possible offer and negotiate from there if you receive a counter offer.
6. Waive extra (or even all) contingencies
In a less competitive housing market, most buyers present offers with a list of contingencies—in a seller’s market, however, the cleaner the offer the better. If possible, you may even choose to remove the mortgage contingency that allows you to back out of the deal if you can’t get a mortgage. As a buyer, this can be a little risky considering you could have to scramble to find financing. But the seller now knows you plan to buy the house no matter what. If you’re concerned about not getting approved for a mortgage, make sure you have a backup plan, like a higher down payment or a co-signer.
7. Expand your search beyond your desired neighborhood
Why not look at homes outside your top neighborhood? If you expand your search, you might find the perfect home, one that meets all your needs, just a few blocks away, and possibly at a price you can afford. Rather than sticking to a specific neighborhood, consider searching by a particular school district if you have kids or define a radius from your workplace to ensure an acceptable commute. Buyers often overlook beautiful homes at more affordable prices when they’re unwilling to look beyond a specific neighborhood.
8. Make an all-cash offer if you can
If you can make an all-cash offer, your offer has a better chance of being accepted over one that has a financing contingency. Sellers prefer cash offers. Typically, the cash buyer can close more quickly since there’s no need to wait on an appraisal or loan approval.
9. If all else fails, wait for the housing market to calm down
Seller’s markets can be a challenging ride if you have your heart set on buying a new home now. However, holding off isn’t always a bad idea if there are reasonable prospects for lower housing prices.
Real estate markets are cyclical. If you’re struggling to buy a home now, a 6 or 12-month pause could mean you’ll be searching in a completely different real estate market. Talk to your real estate agent about all the options outlined above, and think about putting your search on hold. If you wait, you may have more homes to choose from and be able to find a home in your desired neighborhood after all.
10. Consider renting in your dream neighborhood first
Maybe you’ve just moved from Los Angeles, CA to Dallas, TX, or from Toronto, ON to Vancouver, BC, and know the neighborhood you want to live in based on all the research you’ve done online. Another option to consider in a seller’s market is renting a home in your desired neighborhood first to see if you actually love it or not, before permanently committing to the area. You may find that the perfect neighborhood isn’t what you thought it would be and you want to look elsewhere. By putting yourself on the ground, at least you’ll know if you should wait for a home in that neighborhood or keep looking. In the meantime, you’re letting that seller’s market run its course so you can be ready when the homebuying frenzy calms down.