The process of buying a home is relatively straightforward in a buyer’s or moderate market: help your client find the right home, make a solid offer, and close the sale. A seller’s market, however, is a different beast. In this scenario, demand for homes soars above supply, emotions take over home sales, and a frenzy ensues. It can take longer for people to buy the homes they want, and people may experience buyer’s remorse due to irrational decision-making in one of the biggest financial decisions of their lives.
You can help alleviate your clients’ stress by providing advice that will make a seller pay attention to the best offers. Read more in this article for practical tips on navigating offers in a seller’s market.
Gather Information First
Gather as much information about the property before your client places a bid. If your client doesn’t live in the area, visit the property and have the client’s friends or family come with you if possible. For your out-of-state clients, if a 3-D rendering of the home or 360° virtual tour is available, it may be a huge time-saver.
Tour the home with the client in person or live using a smartphone. Keep an eye out for any necessary repairs, making sure to estimate the costs for them. Don’t waste time and energy on a home the client sees as a financial sinkhole.
Stay Within Your Client’s Budget
Know the maximum amount your clients want to spend and don’t go above it. If you honor their budgets, they’re likely to continue the relationship and recommend you to friends and family.
Offer More if the Home is Worth It
Avoid bidding the highest amount your client says they can afford in the initial offer. After comparing similar homes in the area, if the home’s value seems competitive, then it would make sense to offer more. It’s OK to offer $2,000 or $3,000 more than the listing price to start with. Bidding just over the listing price shows a seller you’re interested without giving your whole strategy away. If the seller counters with a higher price, ask your client if he or she is willing to match. It could be feasible to make an offer that is 1-3% higher than the listing price, but only if it fits in the client’s budget.
Remember, offering an outrageous amount over the asking price only really benefits sellers because they’re looking for the highest and most favorable offers. Also, there is a chance that the home won’t appraise if your client needs financing, which will stall or even cancel the transaction.
The Seller’s Dream: An All-Cash Offer
All-cash offers are strongest in a seller’s market. Sellers love all-cash offers because that means they won’t have to deal with the hassle of working with a bank to close the transaction. It significantly speeds up the transaction timeline.
If you have clients who can afford to pay outright for their homes, find out if any cash offers have been made and if so, see if your client can afford to pay a little more than the highest bidder to seal the deal.
The Next Best Thing
If your clients need financing, encourage them to get mortgage preapproval and make generous down payments. Preapproval letters can help sellers see that your clients are serious. Making a 10% down payment or higher is seen as strong by sellers and lenders, as it shows your clients are financially prepared to make the purchase. Buyers who can make a 20% down payment on a home in a conventional loan have the advantage of avoiding having to pay private mortgage insurance.
Ramp Things Up With an Escalation Clause
Another strategy that can help your client’s offer stand out is adding an escalation clause. The clause states that the buyer will agree to pay a predetermined amount in an offer and will automatically outbid other buyers up to a certain amount. Keep in mind that a seller can always raise the listing price or come back with a contingency.
Move Quickly
Having a sense of urgency in a seller’s market will improve your odds of success. In this type of market, homes are bid on sight-unseen, can sell in two days or less, etc., so be prepared to assist anxious buyers (especially out-of-state ones) who need to make big decisions in a short time span. There isn’t much time to view these houses and the buyers probably won’t be able to view them more than once, if at all.
Warnings
Two things to remember here:
- Avoid waiving the right to a home inspection and an appraisal. The inspection and appraisal processes are meant to protect the buyer.
- Avoid encouraging clients to spend more than their budget allows just because they love the home or they know that a bidding war is going on. There will always be another home, and this is not the time to get emotional!
The Bottom Line
Representing buyers in a sizzling real estate market is frustrating because you want to help them get into a home they love when nothing is available or affordable. The key thing is to leave the emotion out of it because your clients can make poor decisions in a very short timeframe. If you can stay rational and focus on making strategic offers, you can give your clients the advantage (and even save them money!).
It’s important throughout the process to stay positive and find homes that meet your client’s criteria. While you can’t control what the housing market will look like tomorrow, you can work hard on your negotiation skills and ensure that your clients have the information they need.
