How To Buy A House In A Seller’s Market
February 23, 2024 6-minute read
Author: Victoria Araj
The process of buying a home is filled with many important steps to know and understand, and one of those steps is determining the type of real estate market you’re looking to make a purchase in. As of early October, most of the United States was in what’s known as a seller’s market, so how does this affect how you buy a house?
Let’s unpack some tips on how to buy a house in a seller’s market and whether it’s a good idea.
What Does ‘Seller’s Market’ Mean In Real Estate?
The real estate market is typically considered either a buyer’s market or a seller’s market. A seller’s market is when there are more buyers looking for homes than properties available for purchase. In other words, the demand for houses exceeds the supply. A seller’s market is ideal for sellers since they’ll in all likelihood hear from a greater number of interested buyers and ultimately be able to accept the highest offer.
This kind of housing market will create some competition between potential buyers in the event of competing offers and perhaps a bidding war on the same house. Buyers are also generally willing to pay more for a house if housing inventory is low and they have limited housing options.
See What You Qualify For
Congratulations! Based on the information you have provided, you are eligible to continue your home loan process online with Rocket Mortgage.
If a sign-in page does not automatically pop up in a new tab, click here
How To Get A House In A Seller’s Market: 6 Essential Steps
Since demand exceeds supply in a seller’s market, it’s paramount to take certain steps during the home buying process in order to achieve the outcome you desire. Next, we’ll look at six essential steps.
1. Assess Your Finances
In a seller’s market, buyers usually end up paying more for a home due to competing offers from other potential buyers. As a result, it’s especially important to carefully assess your finances in a seller’s market. Before embarking on the home buying journey, take the time to analyze your financial situation so you can be sure you have the funds needed to secure a home and make monthly mortgage payments of a particular size.
Determine how much money you’re comfortable putting forward as a down payment on a home, and also figure out how much you’ll need and whether you’ll have enough to make an earnest money deposit and cover your closing costs. It’s also smart to set some money aside for a potential bidding war, especially if you happen to find a house you can’t pass up.
2. Get Preapproved For A Mortgage
Mortgage preapproval tells borrowers how large of a home loan they can expect a mortgage lender to approve them for. Mortgage lenders will look at various items, including your income, assets, credit score and debt-to-income ratio (DTI), to determine how much you’re approved for and the type of home loan you could qualify for.
Not only does preapproval help you understand how much home you can afford, but it also shows sellers that you’re ready and prepared to buy a home. Sellers most often prefer preapproved buyers who seem reliable and have their financial situation in order.
3. Find An Experienced Real Estate Agent
Working with a real estate agent is optional, but it can be beneficial – especially in a housing market you may not be familiar with. Experienced agents can help you navigate a seller’s market by showing you what to look for in certain properties and providing tips on making an offer and securing the home you’re interested in. If you’re a first-time home buyer, working with a real estate agent can be critical to gaining the knowledge you need to be successful in a seller’s market.
4. Cater To The Seller
Since a seller’s market gives sellers the upper hand, it’s in your best interest to cater to the seller as much as you can. If you find a home that has everything you need and you want to proceed with a purchase, be willing to potentially make some concessions and work with the seller to ensure a smooth buying process.
Of course, if a seller wants a price that’s out of your price range, you don’t have to move forward with buying the home. But if they would like some extra assurance on your financial situation and you can provide that or be a bit flexible in the terms of your purchase offer, it’s a good idea to do so.
5. Present Your Best Offer
Anytime you make an offer on a home, it’s best to carefully consider what your offer should be before presenting it to the seller – especially in a seller’s market where the seller could be entertaining numerous offers at once. This is where working with a real estate agent could come in handy. Your agent, the buyer’s agent, can talk with the seller’s agent to find out more about the asking price and maybe get some insight on the current demand for the property of interest.
An offer in a seller’s market should be competitive. Don’t be afraid to make a cash offer (if financially able to) or offer several thousand dollars in earnest money to make your offer more enticing to the seller. More on earnest money in just a second.
6. Offer Earnest Money
Earnest money is a deposit designed to show sellers that you as the buyer are serious about the purchase you’re about to make. This money is held in an escrow account until the real estate transaction is confirmed, and it acts as protection for the seller if you end up backing out of the sale once the house goes under contract.
Get approved to buy a home.
And see how much down payment assistance you may need.
Negotiating In A Seller’s Market
When buying a house in a seller’s market, understanding how to negotiate with sellers can be a big help. While this kind of market can be tough to negotiate in, some negotiating skills can go a long way toward helping you make inroads with sellers looking for the best deal. Below are some negotiation strategies worth considering.
Understand The Home’s Value
In a seller’s market, competition often drives up the cost of available houses. Overwhelming demand can lead to homes selling for much more than they’re actually worth. It’s important to determine the value of the home you’re looking at so you’re not spending more than this.
Knowing home value is also helpful if the home needs significant repairs or work of any kind. Spending too much on a fixer-upper isn’t ideal since you’ll have to put a lot more money into the home after you buy it.
Work With The Seller
As already noted, catering to the seller can be necessary when buying a house in a seller’s market. What kind of offer is the seller looking for? When do they want the house sold by? What’s the absolute lowest price they’ll accept? These are all questions you need answers for as you prepare to negotiate and try to make an offer the seller will find appealing enough to accept.
Present A No Contingencies Offer
One of the best ways to negotiate in a seller’s market is by making an offer that has no contingencies. Since sellers will likely have several offers to choose from, an offer with no contingencies is going to stand out more than one with one or multiple contingencies. Waiving contingencies – like a home inspection or appraisal contingency – also shows the seller how badly you want the home, but waiving these contingencies can be risky and not the best idea.
Should You Buy A House In A Seller’s Market?
Whether or not to buy a house in a seller’s market is a decision only you can make based on your level of comfort with the purchase and your financial situation. In a seller’s market, you can feel pressured to make a decision on a home due to competition from other buyers and the lack of available homes. This kind of housing market can lead to overpaying for a house or not bothering to take necessary but optional due diligence steps like getting a home inspected.
Many added challenges come with buying in a seller’s market. These include:
- Fewer available properties
- More competition
- Higher home prices
- More bidding wars
- Less room to negotiate
The Bottom Line
Buying a house in a seller’s market can be tricky, which is why it’s essential to understand how to navigate this kind of real estate market. Take the time to assess your financial situation, get preapproved, find a real estate agent, negotiate and take worthwhile precautions throughout the journey of buying a house in a seller’s market.
Ready to become a homeowner? Start the mortgage approval process today.
Viewing 1 - 3 of 3
How Much Above Asking Price Should I Offer?
Home Buying - 5-minute read
Katie Ziraldo - June 24, 2023
In a competitive housing market, you may ask, “How much above asking price should I offer?” Read on to learn tips for preparing to offer over asking price.
How To Determine If You Should Buy A House
Home Buying - 6-minute read
Hanna Kielar - December 12, 2023
A lot of factors go into determining whether or not you should buy a house. Here’s what you need to know when making the decision to buy now, or hold off.