How to Compete in a Seller's Market
Chances are you’ve heard something about how we are currently in a seller’s market, but if you’re not sure exactly what that means (or, more importantly, what it means for you), I wouldn’t blame you. Simply put, a seller’s market is when fewer homes are for sale than there are buyers looking to make a purchase. In other words, the supply is lower than the demand for houses. As a result, sellers usually have more control over transactions, leaving little room for buyers to negotiate and drive prices up.
While there are definitely challenges to being a buyer in a seller’s market, there are some advantages as well, especially for first-time homebuyers. Unfortunately, many first-time buyers think they won’t be able to afford the home they want in a seller’s market and so avoid the market altogether. In reality, now could be the perfect time for you to make a competitive offer to purchase your first home. Let’s take a look at some of the key advantages first-time buyers have in a seller’s market.
1. No Sale of Property Contingency
Believe it or not, one of the most competitive things about a first-time buyer is what they lack... a property to sell.
Typically, there will be a section of a buyer’s offer to purchase a home that stipulates they must sell their current property within a specific timeframe; otherwise, they can withdraw the offer. While this is pretty standard, in a very competitive market, offers without this contingency can be more appealing to sellers for several reasons. First, it gives the buyer one less opportunity to withdraw the offer. Second, it means that the buyer may be able to close faster than those who need to sell their current property (more on that in a minute).
Of course, adding this contingency is not required for buyers who already own property. However, many buyers lack the liquid assets to finance the purchase of a new home without selling, and thus, this section of the contract is added. As a first-time buyer, you don’t have to worry about this because your mortgage approval will not be dependent on the sale of another property.
2. Faster Closing
Similarly, because you don’t already own a property, you may be able to offer a faster close which can be especially competitive if the sellers have already vacated the property.
As discussed above, many buyers have to sell their first property within a specified period in order to secure financing and move forward with the purchase of their new home. As a result, long closing periods can be extremely difficult for sellers to accommodate. If you can make an offer that outlines around a 30-day closing period, you may be able to beat out other buyers who offer well over the asking price, but need more time to close.
However, your closing period isn’t a number you can just set. It is crucial to verify the timeframe with your lender before including it in your offer. Due to the competition of the current market, many of the professionals required throughout the closing process (think: inspectors and appraisers) are booked out several weeks in advance. So, be sure to discuss this option with your buyer’s agent and confirm they have spoken to your lender directly to verify that they will be able to complete the application and underwriting process within the allotted time.
3. More Flexibility
You might be catching onto a theme here. As a first-time buyer, you will likely have a little more flexibility to accommodate the seller’s needs than other buyers have. While a fast closing is usually preferred in a competitive seller’s market, some buyers may ask for more extended closing periods or ask to remain in the home for a short period after the sale is finalized. As a first-time buyer, you may be able to work with the seller more than those buyers who have their own home sales to work around. Understanding what is important to the seller can go a long way in making your offer more competitive than those that may be more financially lucrative.
Being flexible and working with your seller doesn’t mean that you yield to their every whim, though. Make sure you have a great buyer’s agent looking out for your best interests throughout the purchase process and can coach you through these decisions. Your agent should be able to help you understand your options and what makes you a competitive buyer.
Approaching a home purchase in a competitive market like the one we are currently in can be an overwhelming experience, so you must understand the advantages you have. It’s essential to work with a buyer’s agent to guide you through the process. The best part about working with an agent is that you don’t have to pay them! Buyer’s agents receive their commission from the seller’s proceeds, but represent your interests throughout the purchase.