In Residential Real Estate a Seller's market is defined as having less than six months of available inventory, and this means that sellers have the advantage. I don't know what you call a market where inventories are measured in weeks not months.
If you are trying to buy a house, you already understand the frustration this type of market creates. To have success in this kind of market, you need to have a solid strategy. These “Tips on buying a house”, apply to any kind of market but are more pertinent in the type red hot seller's market we are currently experiencing.
Having said this, no matter what the condition of the market it's a good idea to have a plan. Here is an overview of how we approach the home-buying process at springs homes.
Choose a Realtor
You can certainly try to do this on your own, but frankly, it's just a bad idea. Every listing agent will see you as a potential buyer prospect, doing this dance is going to waste an incredible amount of your time.
The smartest move you can make is to pick a good realtor and stick with them. A good Realtor is someone that has experience, ethics and a genuine interest in you. Consider this, the end game here is to buy a house you are really excited to own. This house will most likely be listed for sale by another Realtor (a.k.a. listing agent). That Realtor’s goal is to sell the home for a price the seller is happy with to the buyer that is most likely to close with the fewest hassles.
When an offer comes in on that house the listing agent cannot help but consider who brought that offer People are people and as hard as they try to overlook their biases they cannot. It's a good thing to work with a realtor that has an excellent reputation in the real estate community. Let's say you are the "Listing Agent" and "Home Seller". You have four identical offers and you know you're going to spend the next 30 days working with someone. Wouldn't you rather work with someone that's a real professional? Realtors want to do this as well nobody messes up a transaction like an inexperienced non-professional.
Realtors are supposed to adhere to a strict “Code of Ethics, ” and a good Realtor will take this code seriously. It’s a good idea to read through this “Code of Ethics” to get a sense of what you should be looking for in a Realtor. At the end of the day, you are trying to find someone you trust that knows what they are doing.
Once you choose this realtor, you need to help them understand what your goals. They need to do a “Needs Assessment” to get a sense for what and where you should be focused.
Springs Homes Realtor Maggie Turner, tells us about her recent experience with a buyer. I just closed on a property with buyers that were super easy to work with, and they were clear on their non-negotiable needs versus their flexible wants and desires in a house. That helped us to be decisive in the process of eliminating houses that were not a fit, quickly determining what houses met the criteria and which ones didn't. This also came in handy when ranking their options. And in a market where decisions have to be made quickly, it helped us move on the house that was their close second choice after the offer on their first choice house was not accepted.
If you still need convincing, here's a great article by Mark Brian on, Why You Need to Work with a Realtor
Pick an Area
Once you have done a needs assessment and looked at some areas and neighborhoods, you and your Realtor should be able to narrow down the scope of your search. At this point, it’s a good idea actually to look at homes in this neighborhood. Be direct with your Realtor about what you think about the homes you see, and this helps them realistically assess the likelihood of finding something you will be excited about.
It’s a good idea to drive through the neighborhood frequently when you are in the home buying process. You’ll quickly get a feel for prices and availability. When new listings go on the market, you’ll see the signs in the yards, usually before they hit the MLS.
It doesn’t hurt to meet the people that live in the neighborhood. Letting them know you are looking for a home there will often elicit suggestions about possible availability.
Use The Web
Understanding the MLS (Multiple Listing Service) is essential to success in the house hunting process.
By definition, the MLS is a database with information about for sale and for rent real estate. Listing Broker's offer compensation for cooperation by other real estate brokers. In other words, if you have a buyer for this house, we will pay you if you sell it.
MLS’s now aggregate their listing data to “Portals” Realtor.com, Zillow and Trulia are examples of Real Estate portals.
The MLS also aggregates its data to its members through something called an IDX feed. The members then display those listings on their website with the stipulation that the listing brokers name and company appear on their listings.
It’s important to note that any listing data not found directly on the MLS requires aggregation and this requires time. Each entity sets its own download schedule, this is why you often find a listing on one site but not another.
SpringsHomes.com downloads every 3 hours we have found that this interval keeps our data up to date and our buyers on top of the market.
Not all portal receive data from the MLS. For example, Zillow the real estate portal giant relies on agreements with individual brands and private aggregators to receive their data. If you are aggressively looking for a house, Zillow will be among the last to receive the listing data. Your Realtor can help with this as well.
Most MLS’s have the ability for Realtors to setup email alerts for clients. This is a type of reverse prospecting method. The Realtor sets up a search using the prospective buyer's criteria. Any time a listing agent enters a new listing that meets the buyer's criteria, the buyer gets an e-mail notification.
In the event you have yet to choose a Realtor, you can usually set these types of alerts up on many Realtor websites.
Don’t ignore social media. Many Realtors will use social media to advertise their upcoming listings. You can use this as an opportunity to get a jump on the competition. The best way to handle this is to forward the post to your Realtor. This allows them to verify the details of the listing to make sure it’s legitimate.
Don’t Ignore FSBO’s
For Sale by Owner properties are another option you should explore. These sellers are usually willing to pay the buyer's agents commission. In the rare instances when they are not, you will need to assess if you are willing to work with the owner yourself or if you are willing and able to pay your own agents commission.
In our experience, the For Sale by Owner that isn’t willing to pay a Buyer's Agent is determined to maximize their net on the sale. This means an unwillingness to deal with inspection items or appraisal issues. Sometimes the home is so spectacular, you can overlook this but this is generally not the case.
We have talked at great length on this site about getting pre qualified and preapproved, there is a difference. Pre-qualification means the lender thinks you can buy a house. Pre-approval says that based on your loan application, income, and debts, they are willing to lend you the money, you just need to find a house.
Springs Homes Realtors Kelly Moriarty and Maggie Turner share this about pre-qualification vs. pre-approval; Maggie Turner-I recently worked with buyers in a competing offers situation. We had a strong pre-approval letter, not just a pre-qualification letter. I later found out the listing agent knew and respected the (local) lender that wrote the letter, that ultimately ended up being the assurance the sellers needed to take our offer. A pre qualification letter might be good enough when making an offer in a slower market, but right now some listing agents are only accepting offers with a pre-approval. I'm encouraging my buyers to go ahead and get that step out of the way if you want to bring a strong offer and eliminate the questions of your financial position. Kelly Moriarty-I totally agree with Maggie, pre approval vs. pre qualification. That just helped me get a home under contract. When the listing agent called to tell me they were taking our offer, and she said you were the only one with a pre-approval, that kind of shocked me.
In hot markets, Realtors scan the MLS for new listings in an obsessive compulsive manner. When properties do hit the market that meets a buyer’s criteria, the realtor will do one of two things either go preview that property or contact the buyer to meet them at the property, depending on market conditions and potential of the property. There's nothing more frustrating for a realtor then not being able to get ahold of their buyers when a great property hits the market.
Make sure that you and your realtor set up some guidelines about how and when you can be contacted about properties.
Make a Strong Offer
So you have done everything we've suggested above and you found the house, now it's time to make an offer. This is when your Realtor should really show their value. The first thing they should do is prepare a CMA (competitive market analysis). This analysis will essentially show you what the home you're getting ready to make an offer on is really worth. The analysis we'll approach the home's price based on comparable sales in the neighborhood. This is what the appraiser will do at a much more detailed level later on.
From this analysis, you will be able to get an idea of what the home is truly worth. The next part is how much to offer and this question can only really be answered by you. Your realtor can give you guidance but since you're going to have to live with the number you need to pick it.
Once you've decided on a price there are a multitude of things you can do to make your offer stronger. Remember, the goal of the listing agent and the seller is to get the property closed for the highest price and the fewest road bumps because road bumps cost money.
Here are some tips from springs homes agents Brooke Mitchell and Courtney Gilmore:
Brooke Mitchell-As, the listing agent I really like agents I know are good...and dependable lenders (preferably local).
Courtney Gilmore- Right now in our market, buyers are putting homes under contract and then continuing to look in hopes of finding something better. If they do find something better, they just cancel the contract on the inspection or other contingency. This is a big problem for sellers because they have essentially taken their home off the market. The buyer who has no real skin in the game just walks away with their earnest money intact. Listing agents have gotten wise to this game and are now looking for contracts that get the buyer invested in the deal much earlier. I have started asking my buyers to instruct their lender to order the appraisal within three days of going under contract. Additionally, we schedule the inspection to be completed and any objection submitted to Seller within 7 days of going under contract, this is difficult to pull off and sometimes it’s not possible, but it sends the seller the message that we are serious about buying your home.
Cash is King
In a hot market home sellers aren't so concerned about getting their house sold as much as they are with the timing and hassles associated with the process. Additionally, sellers worry about appraisal issues that might affect their bottom line. This is why cash sales are very popular with home sellers. Cash buyers will often waive the appraisal contingency that way they reduce the seller's concern about potential appraisal issues.
From the buyer's perspective paying cash is a good idea if you can do it but you also need to look at the value of the property you want to buy. You don't want to overpay for a home that won't appreciate, especially if you want to resell it in a couple of years.
Debbie DrummondWrites about Cash Sales in This Article: Should I Pay Cash For My Home?
Add an Escalation Clause
There are some instances where you find a house that you must have. These types of properties are usually involved in multiple offer situations. The Escalation Clause can come in handy in these situations.
Brooke Mitchell shares a real world example of how this works-On a modular home out in the county, there were competing offers. My buyers wanted to offer $5,000-9,000 over list price, draining all of their savings & parental gift funds to make this purchase. I advised them to write a strong offer (at list) and include an “escalation clause”... This would give them the opportunity to offer more in the event competing offers started to push the price up. This clause meant they would have the opportunity to raise their price and could be willing to pay more, but may not have to.
Here is a very detailed article about the escalation clause by Kyle Hiscock:What is an Escalation Clause?
Offer to Lease Back
We have seen some success with seller leasebacks. In this scenario the buyer allows the seller to rent the home after closing until the seller figures out where they're going. This is a big incentive for a lot of home sellers for the next closing ready is and their cash to find a new place because it means they're not rushed, and they have proceeds from their home sale to put towards the next purchase thereby eliminating a double move.
From the buyer side, depending on the timing of your move this may or may not be an inconvenience.
Write a Letter
In a market where we see multiple offers, the offers start to look the same in terms of closing dates prices terms and conditions. One thing that can separate an offer from a slew of similar offers is a little touch of personalization. We have seen agents have success with writing personal letters to the home sellers to be presented at the time of offer. Here Nicole Happel and Brooke Mitchell share some experiences they've had with letters.
Nicole Happel-Recently I had a listing which received two offers. Both were a good price and from well-qualified buyers. But surprisingly sellers did not accept the highest offer. Instead, they accepted the slightly lower one, and all because those buyers took the time to write a very personal note to the sellers explaining how much the house would mean to their family. They went on to say how the teenage boy would enjoy the basement area for his personal “man cave” space. The wife loved to cook and would appreciate doing so in the gourmet kitchen. They even said they had been married for 20 years and would enjoy their children’s last years in this house. The picture they painted was heartfelt and endearing. It worked. My sellers were sold!
Brooke Mitchell- The buyer I discussed in the escalation clause section also decided to write a letter to accompany the offer, about how he had been raised in the area and these newlyweds couldn't wait to buy a home outside of town and start their family. Oh, and her husband loved the shop the guy built!! That was the tipping point for the agent and seller. They did not have the pay more than their original offer, saving them $$thousands. The agent was also the buyer's bus driver when he was much younger, it's a small world!
The property inspection negotiation is difficult in any market. Sellers feel like the inspection is petty nitpicking and a chance for the buyer to negotiate the contract. Buyers, on the other hand, feel the need to make sure they're not buying somebody else's deferred maintenance issues and undisclosed problems.
If you're buying you should definitely do an inspection. Once you know the condition of the property you'll be able to decide what to ask for versus what to accept based on the condition of the market.
It's important to note that you can write a contract for a property in as-is condition and still cancel the contract based on an inspection. If the inspection reveals serious defects that weren’t documented in the “Seller's Property Disclosure” you can walk away. As is, simply means that based on what you currently know about the property, you aren’t planning on asking the Sellers for any repairs.
Don’t Lose Your Pre-Approval
Home buyers often forget that once they are under contract on a property any kind of change in their financial situation can get their pre-approval revoked. Every Realtor has heard the stories of a home buyer pulling up to the inspection in a new vehicle. The bottom line is, make no changes in your financial situation until after you close on the property.
Bill Gassett has written a great article about 14 Ways to Get Your Mortgage Preapproval Revoked.
KeIly Moriarty Summarizes it best when she says- The escalation clause has helped me, the 60-day close option helped, being available and showing buyers the day a home is listed is a must as well. These are all great tools, but at the end of the day, I think this is a time where you depend on Realtor relationships and being respectful and most importantly working together to help our clients. Remember that markets go up and down and people remember how you treat them in this business. Treat them fairly and respectfully when you don't have to and they will most likely return the favor. Real estate sales success is a long game.