What to Know About Buying a Home in a Seller's Market, According to Real Estate Agents
This is the real estate climate we're currently living in—and it has everything to do with the COVID-19 pandemic.
The COVID-19 pandemic has had a major impact on the real estate industry, and as a result, many parts of the country are experiencing what is known as a seller's market. "Simply put, a seller's market is a marketplace in which sellers have a competitive advantage due to pent-up buyer demand and low home inventory levels," agent Jeremy Kamm of Warburg Realty says. "Many suburban areas are witnessing market surges and increased demand as homeowners and renters choose to leave urban neighborhoods amidst the pandemic."
Although sellers may have the upper hand in these kinds of real estate transactions, Wendy Walker of Wendy Walker Fine Properties-Coldwell Banker Realty says there are still benefits to buying a home in a seller's market. "Investors can purchase a property and rent very quickly to tenants or to sellers who have sold their houses but have not been able to find their next home," she explains. "In this seller's market, the interest rates are still low, so you also might be able to afford something that you couldn't in past years." Ahead, we asked a handful of real estate experts what to expect when purchasing a property in a seller's market, and here's what they had to share.
You won't have much wiggle room to negotiate.
While negotiating with sellers about renovations, repairs, and closing costs is common in a buyer's market, realtor Lindsey Harn of Richardson Properties says you should be prepared to purchase a property on the owner's terms when the ball is in the seller's court. "The seller may want typical contingencies waived or removed with the offer, meaning a buyer should be totally prepared to get through the inspection process and/or contingency phase in a shorter than standard timeframe," she explains. "In very hot markets, a buyer may need to be prepared to buy without any contingencies all together. In addition, the seller may ask for things like a rent back period at a below-market rental rate."
You need to be prepared.
Since you won't have a lot of room to negotiate in a seller's market, it's imperative that buyers have all their financial ducks in a row before touring or making an offer on a property. This means having your proof of funds or mortgage loan pre-approval documents in hand, as well as an attorney lined up, if you live in a state that requires attorneys for closing. "To find the best mortgage lender, reach out to your bank, local credit unions, and online lenders to compare your options," realtor Andrea Soderin of Richardson Properties, says. "Ask each of them what they are offering for rates, loan terms, down payment requirements, property insurance, closing costs, and fees of all kinds. Make a spreadsheet and compare all of these details to pick the best option for you."
Know that the competition with other buyers will be fierce.
Ask any real estate agent and they'll tell you the same: Multiple offers are customary in a seller's market. "Bidding wars can lead to closings above asking prices as sellers are positioned to choose between multiple offers," Kamm warns. "It is important that buyers move quickly in seller's markets to avoid overpaying; but it is equally as important to avoid making an impulse purchase." To ensure you don't overpay on a property you aren't particularly attached to, Kamm says it's crucial to determine exactly what you are looking for in a house, and the most you are willing to pay for it, before making an offer.
You will likely pay top dollar.
If you plan on making a low offer on a property in a seller's market, Walker says to reconsider. "Many buyers go into a negotiation wanting a deal, but in a seller's market, there are very few deals to be had," she explains. "Sellers know that the demand is high and that they have very little competition, therefore low ballers generally lose." If you have your heart set on purchasing a property, Soderin suggests offering above asking price if possible. "This will set you apart from the competition," she explains.
You'll need the help of a seasoned agent.
To better navigate the ins and outs of buying a home in a seller's market, Harn says you'll need to enlist the help of a knowledgeable real estate agent. "Buying a home in a seller's market can be stressful," she explains. "This is not something a buyer should trust a novice agent to assist them with. Find a strong agent who is well connected in the marketplace, who will be sure to get you the very best price and terms possible without necessarily having to pay the most money."