Buying a Home in a Seller’s Market

Seller’s Market Dynamics: High Demand, Low Supply

Trying to buy a home while in the middle of a seller’s market can be a frustrating process if you’re not prepared. You have to stay on top of the new homes coming on the market every day; otherwise, you run the risk having the house sold before you even get a chance to see it. Then, once you have walked through the property, you need to make a quick decision if you want to write an offer. This is not the time to spend a few nights “sleeping on it” – you’ll sleep right through your chance to own your dream home. Finally, when you do walk through that perfect house and decide to move forward, your offer is going to be 1 of 5 … 10 … maybe 20 other offers, if not more. So, how in the world do you separate yourself from the competition? It boils down to addressing five separate areas of your contract to purchase. Each one plays a pivotal role in shaping the overall offer, as you'll learn below.

If you’ve decided to buy a home this spring, good luck to you. Your challenge will be not just finding a home you like, but also beating out all the other homebuyers who like it and want to make an offer on it, too. The number of homes for sale is low nationwide, particularly in the price ranges desired by first-time homebuyers according to National Association of Realtors. That means that if you want to end up with a nice home, you need to be strategic. Expecting to find the home of your dreams by nonchalantly walking into a few open houses or perusing some online listings is not realistic in this seller’s market across Greater Oakland and the East Bay.

Seller's had a good year in 2016, and 2017 promises to be more of the same across the San Francisco Bay Area and East Bay.

Forewarned is forearmed.

1) Price -

Unfortunately, there’s no getting around it … price trumps all. We live in a capitalistic society, and the opportunity to get an addition $10k or $20k will rarely be overlooked. Most buyers will have a price range in mind that they’re willing to pay for a home. Generally, they like to start by offering an amount at the bottom of that range to give themselves room for negotiations. However, when you know you’re going to have a lot of competition, the price you initially offer may be your only shot at the property. Now is not the time for lowball offers. When in a seller’s market, I tell my clients to be prepared to not get another shot at the property outside of the initial offer. Are you OK losing out on this house based on your offer price?

2) Down Payment & Loan Terms -

Many sellers view a buyer with a large down payment (ie, 20% or more) as being strong because:

• Potentially, the buyer will have an easier time qualifying for loan
• Financially, the buyer will have the ability to better handle unforeseen inspection issues
• Financially, the buyer will have the ability to better handle a low appraisal

If you don’t have 20% to put down, though, don’t feel as though you are out of luck. Seller concerns around smaller down payments can be overcome. But, make sure you are working with an experienced and creative agent … the seller probably won’t come right out and say, “hey, this is my concern with your offer.” Rather, it’ll be up to your agent to discover this information at an early enough stage in the process to give you a chance to counter it. For example, let’s say you and one other buyer have offered the same amount on a house in Glen Highlands in the Montclair district of Oakland – $1,100,000. You’re planning on putting 10% down and the other buyer competing is coming in with 20%. The seller is concerned that the house won’t appraise at the value you both have offered.

What could you do? Well, one idea is to add a clause to your contract that you’ll agree, up-front, to covering the difference of a low appraisal all the way down to an appraised value of $998,000. Now, the seller has reassurance the he’ll get the full $1,100,00 for his house even if an appraiser doesn’t agree with that value.

3) Contract Terms -

Buying a house is an expensive endeavor for more reasons than the purchase price alone. Inspections need to be paid for. Reports paid for. There are title and escrow fees. Loan fees. Doc fees. Courier fees. The sky-is-blue fees. You get the point. Well, the good news is that all of these fees are negotiable.

Check out local ordinances for current rates.

As a buyer, you can ask the seller to pay for any or all of them. These fees will add up, though. And, if you ask the seller to pay for them, keep in mind that this will detract from the purchase price you offered. If the seller is working with a competent agent, each of the offers will be distilled down into the net proceeds that the seller would walk away with if they accepted it. Meaning, the agent would place a dollar amount on each of the terms that you are asking them to pay for and then subtract it from the purchase price you offered. Because of this, it’s important that you consider the cost of each item before you ask the seller to pay for it. Each market will have customary practices as it relates to certain terms. An experienced Realtor will be able to advise you on local practice and customs for your area.

It's all negotiable, but weigh your options carefully since you don't want to burden the seller in a competitive market.

4) Contingencies -

Most offers have 3 contingencies written into them: loan, appraisal and inspections. These contingencies allow a buyer to back out of a contract while still retaining all of their deposit money. The shorter these periods are, the better. There’s nothing worse for a seller than having their property tied up for a couple weeks only to have things fall apart. They then have to put the house back on the market, negotiate with new buyers and then go through all the hoops again. If a buyer is going to back out of a contract, the seller would prefer it happen sooner rather than later. Shortening (or completely bypassing) your contingency periods minimizes the seller’s exposure and makes your offer look all that much better.

5) Closing Time -

Each seller has a different reason for wanting to sell their home. Some need to move immediately (maybe due to a job transfer). Others might be downsizing and need some extra time to find their next place. Whatever the reason may be, it’s best if you can find out what their desires are and then accommodate them as best you can. If the seller is staying in the area and needs more time, consider offering them the potential for a short-term rent back (generally done at the cost of your PITI: principle + interest + taxes + insurance). If they need the proceeds to close on a new house, think twice before you ask them to wait 60 days for you to close.

6) Looking Strong - Putting your best foot forward

Looking strong in a seller’s market requires you to consider each and every aspect of your offer very carefully. You need to shape it to the desires and concerns of the seller. You need to be prepared to put your best foot forward on the initial offer; otherwise, you may not get another chance. When a seller receives 15 offers, they’re not going to go back-and-forth with every one of them. If you’re not in the top 2 or 3 from the very start, don’t expect anything other than a brief email or phone call stating you weren’t selected but they wish you all the best in your continued search.

If you need some help flexing your buyer-muscles, let’s chat !

CALL CARLOS 510-798-5016