How to Buy a Home in a Seller’s Market
WHAT DOES A SELLER’S MARKET MEAN?
In real estate, there are buyer’s markets and seller’s markets. In a seller’s market, the demand for homes to buy outstrips the inventory of homes for sale. In other words, more people want to buy than there are homes for sale. Properties sell faster than in a normal cycle and inventory is typically lower. In a normal market, you would expect a home to sell within 60 to 90 days of when it hits the market. In a seller’s market, on the other hand, homes are selling in fewer than 30 days.
Since home inventory for sale is low, buyers get more aggressive and try different tactics to get the home of their choice. They will often bid over the asking price and try to sweeten the deal for the seller by waiving certain requirements.
In 2019, we were in a buyer’s market. There were more homes to buy than buyers looking to purchase them. By 2020, the real estate market changed to a seller’s market very quickly. Homes that had sat on the market for 90 to 120 days were suddenly snapped up. By the middle of 2020 the sales of homes were up 20% or more and the inventory was down by 40%!
Within a few months of enduring the pandemic, people started looking to buy homes and shortly thereafter homes were selling quickly. The shift in the market occurred when people began working from home and children began virtual schooling. Suddenly, the size of people’s homes became an issue. People wanted more space and were willing to move further away from metropolitan areas. A longer commute was no longer a deal breaker. Many people believe that the workplace environment has changed forever. Most people do not expect to be in their offices 5 days a week. They expect to have a modified schedule so commuting will be less of an issue. The importance of one’s home has taken on new meaning in this new world we find ourselves in.
HOW TO BE A SUCCESSFUL BUYER IN A SELLERS MARKET
I have clients asking me if they should buy now or wait. I tell them the time to buy is now. You don’t know when the market will slow down and there is a good chance prices are not going to drop. Real estate is always a good investment because you have to live somewhere and why not live in a home you love? Chances are the prices will continue to grow over the long term, so get in now before the prices increase another 5 to 10%.
Some buyers are afraid of a bidding war. I tell them not to worry about that. My suggestion is to review the comparables of homes that sold recently in the neighborhood that you want to purchase a home in. Knowing what similar properties have sold for will give you an idea of what the home you want to buy is worth. Some buyers get nervous in this type of market but I say if you want to buy a home, better to buy now than wait because prices rarely decrease.
You should never be afraid of a bidding war; you just need to know your maximum bid and stick to it. It really is very simple.
With that in mind, you should make an offer based on what you consider the value of the property is to you. For example, I have clients who wanted to buy a home with a pool near a beach with a budget of $600,000. Most homes with a pool sold for $800,000 or more in this area. When a newly renovated home came on the market for $570,000, we visited the property promptly and my clients loved it. I did a market analysis so they knew what other homes sold for and we put in an offer that was significantly over the asking price. They knew they wanted this property and they bid aggressively for it. My clients had the strongest offer but the seller’s agent asked everyone to come back with their best and final offers. A bidding war started. My buyers held their offer but sweetened the deal by offering to buy the furniture too (they loved it!). Our bid was accepted and my buyers are happy. Seven months later, nothing has come on the market that has a pool near the beach for that price point. So the lesson learned, know what you want and be willing to go for it.
The value of real estate is based on what the market will bear. In other words, the price of a home is what the buyer will pay for it. There is not some “price” that is the right one. So, if you are looking for a property, know what your budget is and then look to find property that has what you want.