Chances are, if you’ve done any research, you’ve seen the terms “seller’s market” and “buyer’s market” frequently. But what exactly does that mean for you?
If the local market is trending toward a seller’s market, then the demand for homes is larger than the supply. People have more money to spend on real estate, so sellers often see multiple offers, which drive up prices. Therefore, buyers will have to spend more to get what they want.
A buyer’s market is the exact opposite. A buyer’s market is a situation in which supply exceeds demand, giving buyers the advantage in the negotiation process. Sellers aren’t likely to see multiple offers because buyers have many options to choose from and often times sellers will accept less in order to sell their property quickly.
The local market in Raleigh is currently a seller’s market. So, if you’re thinking about buying a new home, what does this mean for you? A bit of preparation and strategic planning up front can help give you the advantage over other buyers in the market and increase your chances of a successful closing. Here are a few tips to navigating a seller’s market.
- Talk to a Lender Immediately – Some homes are going under contract within a matter of hours. Most, if not all, sellers will require a pre-qualification or pre-approval letter from a lender to be submitted with any offer. While the approval process is relatively quick, the housing market can be even quicker. The letter will give you an idea of how much you can afford, helping you to eliminate homes that are out of your price range. All else being equal, a seller is more likely to sign an offer with an accompanying pre-qualification letter than one without. Give yourself the edge.
- Prepare to Close As Quickly as the Seller Requires – Most sellers will want to close within 30 days if possible. Many sellers are waiting for their home to close before closing on a new home themselves, so extended closing dates are often one of the main deterrents to picking an offer in a multiple offer situation.
- Offer More Earnest Money or Due Diligence Fee – Earnest money is a deposit made to a seller indicating the buyer’s good faith in an arrangement. It is held in escrow and is refundable up until an agreed upon deadline. The Due Diligence fee is the amount paid by the buyer directly to the seller, which the seller keeps no matter what. If the deal closes, the buyer will have that amount credited back to them at closing. But either way, that amount up front is the seller’s to keep. Offering more earnest money or due diligence fee is another way to make your offer more tempting than others the seller may have received. The more financial skin you have in the game, the more serious of a buyer the seller will think you are.
- Make Your Best Offer Up Front – Standard negotiation practice would advise that you never show your cards all at one time. Go in with a lower offer than you’d be willing to accept and negotiate your way from there. However a seller is less likely to negotiate back and forth with you in a seller’s market due to the fact that there are more buyers to choose from. Don’t waste your time or the seller’s time. Come in with your highest and best offer. If they don’t accept it, than no amount of negotiation was going to make a difference anyway.
- Consider an Escalation Clause – In a seller’s market it is likely that you will be dealing with multiple offers. An escalation clause details how much you’re willing to pay over competing offers. It shows a seller you are a serious buyer and assures that your offer, all else being equal, will be the highest among those received.
If you have any questions or if you are thinking of buying or selling, please contact me today. I look forward to hearing from you.