The housing market isn’t overheated, it’s on fire. Both pent-up post-pandemic demand for homes and a supply shortage has pushed median sales price on existing single-family homes up 16.2% year over year during 2021's first quarter, according to the National Association of Realtors. To navigate a seller’s market, buyers will need patience and a willingness to walk away—here are some tips on getting a good deal on a new home.
When buying in a hot market, be prepared to wait
If you’re a buyer, you might want to wait until the housing supply picks back up, or at least be willing to wait, as you might not have a choice—64% of active homebuyers in the first quarter of 2021 had been searching for more than three months, with 45% of those buyers saying that being outbid has kept them from buying a home. In less overheated times, the average time it took to find a home was about 56 days, so that’s quite the difference.
Moreover, you don’t want to rush into a seller’s market needing to make a purchase. As an example, if you’re selling your existing home while trying to buy a new one, consider a backup plan for where you’ll live if finding a new home takes longer than expected (Bankrate has some good tips on that here). Without the burden of time constraints, simply being able to say “no, for now” will help you find a better deal.
Get mortgage pre-approval
Getting a mortgage preapproved demonstrates to sellers that a lender has verified your creditworthiness and that you’re a serious bidder who is ready to move forward with the deal. And lining up a mortgage takes a lot of time and paperwork, so having that done ahead of time will give you an edge on other less organized buyers. This process will also provide clarity on what your home buying budget will look like: You’ll know how much a potential monthly mortgage payment could be based on your income, down payment, and credit score. You can then use this information to set limits on what your final homebuying budget will be before you get into a bidding war on a home.
Get a good realtor
While you want a realtor that’s an experienced negotiator, you’ll also want someone who is patient, objective, and resourceful. A good realtor should be able to explain the housing market, using apples-to-apples comparisons with similar properties that have recently sold, ideally in the same neighborhood as a prospective home. A well-placed nudge from your realtor is sometimes needed if you have unrealistic expectations, but you should never feel like they’re trying to sway your opinion or rush your decision.
Search for homes below your spending limit, too
Don’t just look for homes at the top of your budget, as you’ll likely get outbid on a lot of homes in a seller’s market. Instead, consider making concessions on the type of home you’d own. This is why it’s a good idea to list your “needs” and “wants” for a home early in the home buying process, as it will help you figure out an acceptable compromise later. These compromises can include looking for homes in neighborhoods you have never considered before, or perhaps a house with fewer amenities, like one instead of two bathrooms. Depending on your situation, these concessions can feel rather minor when compared to the monthly savings on your mortgage payments.
Keep the home inspection simple
You shouldn’t waive a home inspection, as that might leave you vulnerable to undetected structural damage that requires a lot of money to repair. Instead, you can offer a “informational” inspection, which means you won’t use an inspection to demand price concessions on the part of the seller. At the same time, you can still walk away from the transaction based on what’s uncovered during the inspection.
When buying in a hot market, consider deal-sweeteners
If you’re making a bid, try to look past the sticker price and get a sense of what’s important to a seller. Perhaps the seller is trying to take advantage of the market conditions but is actually reluctant to move: In that case you could offer a rent back agreement as part of your bid, allowing the owner to stay in the home for a few months after closing. Or, if the seller has to move in a hurry, offer to buy some of their bulky furniture as part of the deal. Your job as the buyer is to make the sale as painless as possible for the seller.