How to buy a house during a seller’s market?
Real estate has never worked like other purchases. You can’t just go to a store and pick out a place to live. Even new construction only works that way when housing markets have cooled down.
In a hot or even neutral market, buying a home takes a bit of luck and a good plan. During today’s incredibly hot seller’s market, it is becoming even more difficult to find a home in many parts of the country.
It is not uncommon for a new offer under contract to go above the offer price on the same day they are listed. That is a huge challenge for people who want to make the usually biggest purchase of their lives. You can’t wait to look at new listings and sometimes you have to make a decision (and an offer) without actually seeing the property.
Even then, if you bid on, or even ask for more than, without seeing the property, you could still miss out. It’s a frustrating process, but there are ways to at least somewhat stack the odds in your favor.
This is (almost always) the best time to buy
If you look at the chart above showing the average sales price of homes in the United States, you will see a line that is steadily going up. Yes, there are some dips, they are generally short lived and not predictable.
For example, if you thought prices were too high in the fourth quarter of 2017, when they averaged $399,700 per home, you would see the averages fall until they started rising again in 2020. The problem is that there are many other multi-year prices where prices just rose steadily.
That’s a phenomenon well described by Nicole Rueth, mortgage broker and senior vice president of Fairway Independent Mortgage Corp. in Colorado, to Veronika Bondarenko of TheStreet.
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“Real estate may not go up every year, but it always goes up,” she said.
So you can wait for a dip, but that’s a risky strategy and ultimately one that could hurt you or not really matter since in the long run, in the broad sense, now is almost always the best time to buy .
How do you buy a house on a seller’s market?
Everything starts with having the right broker. My wife and I have used the same mother/daughter real estate team since we bought our first Florida real estate (a small vacation condo) about six years ago. That duo helped us buy our first apartment to live in West Palm Beach, helped us sell that apartment, as well as the first, and found our current rental house to live in.
When we sold our house to move into a larger rental property, our real estate agents (who had become good friends) helped us buy a Disney World-area resort that we both use and rent out. That market was so hot that you had to be a cash buyer (we were with the proceeds from the sale of our house) and you had to be aggressive.
We researched which resorts and communities we liked (by staying in some of them), while our brokers researched the prices. And when apartments came on the market, we had already prepared our offer so that our real estate agents can move into it almost as soon as a property became available.
Cash bidding on an apartment you’ve never seen before felt a little scary, but we trusted our brokers who made sure we had the option to pull out if the inspection revealed any real problems. We ended up buying a two bedroom resort in a resort we loved and we followed almost the exact same script when it came to buying a new home to actually live in.
In the process, however, we learned a few things that can help anyone when looking for a home:
- Open your geography: We started our search in West Palm Beach and soon found out that we just didn’t want to spend the kind of money it would take for the house we wanted. To find a home that fit our requirements, we finally decided to look north in Port St. Lucie about 45 minutes away. It’s an emerging area that has a lot of the things we wanted that we expect to continue to grow very quickly.
- Look for problems: Many people want to move into homes or do limited work. The house we ended up buying needed a full cosmetic renovation and a tenant lived there (who has 90 days to vacate). The renter made showing the house difficult (it wasn’t clean or well-maintained in any way), so we were able to buy it with a quick, over-asked, unseen offer.
- Know the market: The house we bought was $30,000 less than a comparable property we lost, which was less than it was worth based on comparable sales in the market. We came in at $20,000 more than asking and closed the deal for $10,000 less than the other property would have cost us (probably because the tenant being allowed to stay for three months scared off rivals who had to move quickly.
- Get your finances in order: There is a difference between a mortgage prequalification letter generated by a website and a letter from a real representative of a mortgage company who has gone through your finances. When we made our offer, the seller’s broker called our mortgage company, where the person we had worked with assured the seller that we were well qualified for a quick close.
Buying a home in today’s market is challenging, but it is possible. You just need to be prepared, act quickly and be open to compromise.