In a lot of areas, buyers are seeing a seller’s market. That means now is a great time to sell a home. But that can making buying a home a risky move. With houses flying off the market and prices on the rise, sales are expected to reach the highest volume in over a decade.
The housing shortage is helping to send the market higher. That combined with a steadily improving economy plus historically low interest rates is creating a strong seller’s market. So what does that mean if you’re a buyer?
Primarily, this means that competition is tough out there. Some buyers are getting creative and aggressively going after sellers to stand out. Buyers should consider all scenarios that can happen in this market climate. You could end up in a bidding war or over spend.
But there are a few strategies that can help a buyer to stand out in a seller’s market.
Stick to Your Budget
Buyers should consider what could go wrong in this kind of market. A bidding war could entice you to spend more than you can afford. An inflated price could leave you owing more than you can sell the house for down the road, should home values’ fall.
Examine pricing in the area and determine whether prices are being driven by low inventory or a strong economy. Prices being driven by a strong economy are a positive sign that the economy will be able to sustain these prices.
It still can be a good time to buy even with low inventory and rising prices. Factor in how long you expect to keep your home. Short term volatility won’t matter as much if you plan to keep your home for the long term. And while mortgages remain low, home prices could keep rising.
Trying to buy a home becomes frustrating when homes for sale are hard to find. The housing market needs to be balanced between buyers and sellers. Typically there is enough inventory on the market to fulfill the demand of buyers for six to seven months. But currently that is not the case.
In many big cities listings are down. This could be because when the housing market crumbled a decade ago many homeowners haven’t fully recovered and they are waiting for housing prices to go even higher before they sell.
No matter the reason, a listing shortage has a major impact on housing prices. In many cities, prices are not being driven by a strong economy but by a shortage of listings.
Want to determine if your local economy is strong? Look for signs of new homes in your area.
New construction shows that the local job market is strong and incomes are rising. It’s a sign that the market is sustainable.
Buyer should keep in mind that patience can pay off. There can be a frenzy when it comes to buying houses in a strong market. Taking a step back and letting things settle can lead to not over paying.
Don’t Be a Short Term Winner and Long Term Loser
When buyers move ahead in a seller’s market they can often get hooked on the idea of winning. But winning in a bidding war can lead to overpaying which could really mean you are losing in the long term.
While you might want to jump in quickly, it will only add more fuel to the frenzy. Because of this, it’s important to determine how much you can afford before you really start looking at houses. Contacting a lender and getting your pre-approval letter can also help in the process. Be sure to look at your own expenses and not buy the most house you are approved for. You need to make sure you leave enough money for expenses furniture and emergency funds.
Now that you have your budget, stick to it. You may need to be prepared to walk away if prices go too high.
Consider looking at houses that have been on the market for a while. You may be able to make an offer below their asking price. Always get an inspection to make sure there aren’t any problems with house larger than you are willing to take on.
It’s often hard not to get caught up in the buying process. But you need to make sure you are looking out for your best interests.
In the buying frenzy, some buyers are so excited to buy a house they are waiving rights that are typically standard in sales contracts.
Saying you are willing to move forward with a sale even if the property does not appraise for the purchase price or skipping an inspection are two ways you could get hurt in the long run. These contingencies are in place to help protect buyers. When you drop them from a contract, you are risking your deposit on the property if you decide to walk away. You could even risk being sued by the seller.
If you forgo the appraisal contingency and the appraisal comes in low, you will have to come up with your own money to make up the difference and fast because lenders usually base the loan amount on the house appraisal.
The bottom line is that when it comes to a seller’s market, home buyers need to keep their wits about them. Do your homework. Research the area. Know what you can realistically afford. And then be disciplined in your approach to finding a house that works for you.