Picture this — you’re in the market for a new home, and you quickly find one that is perfect. It has all the features you’ve been dreaming about and seems to be in your price range. So, you put in an offer.
However, your excitement quickly turns when you discover that you were outbid or, worse, weren’t even given a chance to bid in the first place. Unfortunately, the current real estate environment is a “seller’s market,” which can quickly lead to a frustrating home-buying experience.
But all is not lost. You will find your perfect home; it just may require a little more work, patience, and understanding of how to navigate this type of market.
What is a Seller’s Market?
In real estate, a seller’s market is when home inventories are low, causing a spike in demand. You can typically identify a seller’s market when:
- Homes sell quickly, usually within a few days of being listed,
- Bidding wars break out between potential buyers, driving up prices, or
- Homes are selling over the asking price.
Low-interest rates will perpetuate this type of market since financing is cheaper, attracting more potential buyers into the market.
In contrast, a buyer’s market is when home inventories are high. The Great Recession of 2008 is a perfect example of a situation that created this type of scenario. Many homes went into foreclosure, causing the number of properties on the market to skyrocket. With more houses for sale and fewer buyers, home values dropped significantly.
Tips for Buying a Home in a Seller’s Market
While, on the surface, this type of market may have you feeling uneasy, there are strategies to help you navigate a seller’s market:
- Get Pre-Approved for Your Home Loan
Becoming pre-approved means your lender reviewed various aspects of your finances, such as your credit score, income, debt, and assets, and determined how much money you can afford to borrow. You will also lock in the interest rate on your mortgage for a set timeframe – usually between 30 to 60 days. This benefit allows you to shop for a home without worrying about rates increasing.
A pre-approval is crucial for two reasons in a seller’s market:
- It helps keep you within your budget and lets you know how much you can spend.
- Homes sell quickly, and sellers want to know you have financing lined up. For this reason, most sellers won’t consider offers if you aren’t pre-approved for a home loan.
- Hire a Great Real Estate Agent
In a seller’s market, homes sell fast, usually within a couple of days of hitting the market. Therefore, you want an agent who knows what is coming up for sale before other potential buyers. An experienced real estate agent will also be able to provide insight on bidding strategies should multiple buyers make offers on the property you want.
- Set Your Bidding Budget & Stick to It
If you make an offer on a home, chances are it won’t be the only offer that particular house will receive. So as bids start to rise, it’s crucial that you’re not making emotional decisions.
For example, winning may be your primary goal if you’re competitive by nature. Or, if your partner loves the house, you may want to triumph for their sake. Either way, your goal shouldn’t necessarily be about winning. Instead, focus on your budget and what you can afford. You’ll want to set your top-line budget and stick to it. Knowing when to walk away is just as important as your final bid.
- Make Concessions
If you don’t have the budget to play in a bidding war, you may offer concessions to the sellers instead. These items could include covering a portion of the seller’s closing costs or paying for necessary repairs yourself. While these compromises could still be costly to you, they may be less expensive than a bidding war. If a seller wants to close quickly, concessions may help sweeten the deal and speed up the process.
- Be Patient
It’s easy to fall in love with a home. But buying a house is one of the most significant financial investments you’ll make in your lifetime. For this reason, you want to ensure you’re making a wise financial decision. While the market may be in a frenzy, be patient, and the right home will find its way to you.
Takeaway
Buying a home in a seller’s market can be challenging – but it’s not impossible. With a pre-approval in hand and an excellent real estate agent by your side, your new home isn’t far away. Be patient and stay within your budget; again, knowing when to walk away from a home is just as important as making an offer.
We’re Here to Help!
If you’re ready to begin your new home search, we’re prepared to help. Our home loan experts are here to answer all your questions. Our goal is to make sure you understand the home-buying process and are financially prepared to take on this next chapter of your life.
To speak with a home loan expert or begin the pre-approval process, please set up an appointment at one of our convenient branch locations, visit siucu.org or call 618-457-3595.