In a white-hot seller’s market such as this, trying to get an offer accepted can feel like a monumental task. However, if you know how to navigate the process and present the right offers at the right time, you can make it happen.
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What is a Seller’s Market?
The real estate market is cyclical. It’s constantly changing, evolving, growing, contracting, and adapting to external factors within the community and the larger economic environment. And while there are brief periods of time where conditions could be described as neutral, the market can usually be described as either a seller’s market or a buyer’s market.
A seller’s market – which is what we’ve been in for the last couple of years – emerges when demand exceeds supply. To put it another way, it’s when there are more buyers than real estate listings. When this happens, sellers have a major advantage over buyers.
In a seller’s market, home prices increase, properties sell faster, and buyers are forced to compete with one another to get their offers accepted. People start spending more than anticipated, and all of the traditional steps and processes in the home purchase process can go out the window. (For example, some buyers will skip inspections and buy properties as-is, which forces other buyers to do the same or face a distinct disadvantage.)
Seller’s markets typically involve bidding wars – which is where multiple buyers will competitively bid against one another and drive up the price above the original asking price. This is good news for sellers (who can net significantly more than what they asked). It’s bad news for buyers who can quickly overspend or get priced out of a property they’d otherwise be able to afford.
As a buyer, a seller’s market is emotional. And if you aren’t careful, the added pressures and economic challenges can become too much to handle. Many buyers eventually do one of two things: bow out or overspend. But you don’t have to do either of these if you have a plan.
Getting an Offer Accepted in a Seller’s Market
If you’ve made offer after offer – only to see each one get turned down in a gut-wrenchingly predictable fashion – then you’re probably wondering what you have to do to get one accepted. Here are a few suggestions:
1. Offer Above Asking
The fastest way to show you mean business is to offer a competitive offer. And in a seller’s market, this may mean offering above the asking price.
Making an offer above the asking price is really more psychological than anything else. You don’t always have to make a massive offer. Sometimes an extra $2,000 to $5,000 above asking is all it takes. It shows the seller that you’re serious and immediately makes your offer stand out. (And when you calculate the increased asking price over a 15- or 30-year mortgage, it’s really only a couple of extra dollars per month.)
According to The Kay-Grant Group, this is where having an experienced real estate agent on your team helps. They can let you know when it makes sense to offer above asking, how much above asking to offer, and when to move on to another property.
2. Make the Offer as Clean as Possible
As a buyer, it’s easy to assume that the seller is always looking for the highest asking price. And though money always talks, an offer goes far beyond dollar signs and decimal points. Sellers consider a number of other factors and want to make sure that any offer they do accept has the least amount of friction possible. To put it in real estate lingo, they want a clean offer.
A clean offer is an offer that has as few contingencies and requirements as possible. In other words, there are fewer statements within the offer that give the buyer the freedom to void the contract and walk away.
As a buyer, you obviously want to include as many contingencies as you can. (They act as a form of personal protection and provide flexibility.) However, in a seller’s market, each contingency or term you put in the body of your offer is something that could potentially cause a seller to reject your offer.
From a seller’s perspective, there’s no reason to accept an offer with a bunch of contingencies in a seller’s market. After all, it lowers the chances that the deal would actually reach the closing table.
So the cleaner you make your offer, the better. (You’ll have to decide what that means for you. If you’re uncomfortable waiving inspections – which is pretty serious – don’t. Just make sure you’re going light on other terms and conditions to account for this fact.)
3. Use a Sizeable Earnest Money Deposit
When you make an offer, it’s presented with an earnest money deposit. This shows that you’re a good-faith buyer and that you’re putting your money where your mouth is.
Generally speaking, the earnest money will equal one to three percent of the purchase price of the home. Anything larger than this amount shows you’re very serious. (That’s because if you decide to back out for any reason not included in the contract, the seller can legally keep your earnest money as compensation for the wasted time.)
4. Write a Personal Note
Want to get on the seller’s good side and personalize your offer? Writing a personal letter and including it with your offer is a good way to humanize the exchange.
This personal note should be honest and tasteful. Avoid sucking up or exaggerating. The goal is simply to introduce yourself and your family, provide a couple of details about yourself (including anything you may have in common with the seller), and explain why you want the house.
You won’t get an offer accepted solely based on a personal letter, but you can make your offer stand out when all other factors are created equal. It has a way of creating a small bond.
Get the House of Your Dreams
While it’s much better to be looking for a house in a buyer’s market, a seller’s market doesn’t have to disqualify you from buying. It’s all about how you approach the situation. If you know which factors move the needle, you may be able to present a more compelling offer and finally get one accepted.
For best results, try using a combination of the techniques highlighted above!