Six tips for buying a home in a seller’s market
You’ve decided it’s time to buy a home. Perhaps it’s your first house — or maybe you want a bigger place to accommodate your growing family, a dedicated area for remote learning — or you need a home office. You may even want to downsize or relocate to a new area. Interest rates are historically low, which is the good news. But home inventory is low, too, which means there are currently more buyers than sellers. So how can you find and purchase your dream home in today’s competitive seller’s market?
Being prepared and being ready to act fast are keys to success when buying in a seller’s market. These six tips can help put you in the best position to get your offer accepted.
Get preapproved. A preapproval letter is documentation from a mortgage lender stating that you’ve been approved for a loan, and sharing the amount you’ve been qualified to borrow for a mortgage. Getting preapproved for a loan puts you in a stronger position when you’re ready to make an offer on a home by giving you more credibility with the seller.
To preapprove you for a mortgage, your potential lender will need to verify your monthly income and available down payment amount.
Regardless of your preapproval amount, it’s a good idea to review your household budget and expenses to determine what monthly mortgage payment you’re comfortable with. Consider the most you’re willing to pay so you’re only looking at homes that meet your criteria. A mortgage calculator can help you estimate the mortgage amount you might qualify for, as well as monthly payments.
Start house hunting. Make and prioritize a list of your wants and needs so you can decide in advance which features you can (and can’t) live without, such as number of bedrooms, commute time or willingness to make home improvements. Knowing where you’re not willing to compromise will help you zero in on the right homes to view.
Next, be ready to look at homes as soon as new listings appear, especially if you’re interested in a specific area or a highly desirable location (such as a top school district). Keep your schedule open and plan tours as soon as a home becomes available.
Be prepared for some video or virtual house tours due to COVID-19 restrictions. One benefit of virtual tours is that you can view multiple homes in a shorter amount of time, versus driving from one listing to the next.
As you consider different properties, gather as much information about each one as you can, such as offer deadlines and any seller disclosures.
Make your best offer first. “The biggest challenge facing homebuyers right now is housing stock,” explains Eric Nelson, Mortgage Product Manager at Commerce Bank. “Sellers are getting multiple offers, so it’s important to put in your best offer first,” he adds.
Consider offering above asking price if you have your heart set on a specific house, but make sure it’s an offer you can comfortably afford. Keep in mind that mortgage loans are based on a home’s appraisal. If your accepted offer is above the home’s appraised amount, you’ll have to make up the difference with your own out-of-pocket funds.
Other ways to help your offer stand out include writing a personalized letter to the seller, explaining why their house means so much to you. You may also want to consider adding an escalation clause to your offer, which gives you the chance to be the highest bidder if a larger bid comes in after your initial offer. Finally, making a cash offer, if you’re able, can make your offer more desirable to a seller.
Consider more earnest money. In a seller’s market, offering more than the standard amount of earnest money shows the seller you’re a serious buyer and could put you at an advantage when the seller is considering multiple offers. Research typical earnest money amounts for your area. For example, if it’s $5,000, consider offering $10,000. Or ask your real estate agent to recommend an amount.
Keep contingencies to a minimum. A simple, straightforward offer means less stress for the seller, and that makes you a more attractive buyer. “Make your offer more appealing by not asking for seller concessions, if possible,” says Nelson. “For instance, try to avoid making the offer contingent on selling your home.” In fact, you may want to plan on selling your current home and moving out before you start house hunting, so you don’t have that contingency attached to your offer.
“Also, ask yourself if you’re willing to make some renovations to the home to better fit your style, or if there are small repairs you can do yourself, instead of asking the seller to do them before you move in,” adds Nelson. Making renovations before putting your current home on the market may also help get it ready to sell quickly.
Finally, being open to adjusting timelines may increase the likelihood of the seller accepting your offer. These can include closing dates, inspections, appraisals, or even delaying when you take possession, giving the owner more time to move out.
Be flexible. If you’re unable to find what you’re looking for now, consider building a new home versus buying an existing one. Be open to new locations, too, especially if you work remotely. Finally, consider putting your home search on hold for a few months or shopping for a home during off-peak seasons, like the fall or around the holidays.
Set yourself up for homebuying success
While it may be more challenging to find the home of your dreams in a seller’s market, it is possible with planning and preparation. For more information about mortgages and the preapproval process, talk to a Commerce Bank Mortgage Banker to learn about your mortgage options.