Buying a Home in a Seller’s Market
For most people, a home purchase is the single most expensive purchase they make during their lifetime. For this reason, it is a good idea to understand the ins and outs of buying real estate as well as your current market conditions before you begin your search for a new home. Toward that goal, the first thing that a prospective buyer should consider is whether the market is a seller’s market or a buyer’s market at the time he or she wishes to make a home purchase. If you are that buyer, and you are searching during a seller’s market, your search may be a bit more difficult; however, with an experienced real estate agent assisting you, and a basic understanding of the market you will be living in your dream home in no time.
To give a simplified explanation, the real estate market is for the most part a perfect example of the economic principals of supply and demand. When there is an abundance of supply, and little demand, it is a buyer’s market. On the other hand, when supply (in this case the inventory of homes) is low but demand for homes is high, we have a seller’s market. Buying real estate during a seller’s market is by no means impossible; however, you need to understand the challenges and obstacles you may face in order to make the most of your home purchase in a seller’s market.
The first challenge you will likely face in a seller’s market is a low inventory of available homes. This is where working with an experienced and knowledgeable real estate agent becomes essential. Your agent has tools that allow him or her to know the moment a property comes on the market. Sometimes, your agent may even know before the home is officially listed on the market for sale. This saves time while increasing your options in a market where options are limited.
In a seller’s market, home prices go up because sellers know they can get more for their property due to the limited supply. This, however, does not mean that you should overpay for your home purchase. The real estate market is notoriously fickle. A seller’s market today can be a buyer’s market tomorrow. As such, the market value of a property can change significantly in a relatively short period of time. By working with your real estate agent, you can use “comparables”, or similar homes in the area that have recently sold or that are on the market, to determine the true value of a home you wish to purchase.
Negotiating is frequently the key to buying real estate in a seller’s market. Bidding wars are common in this type of market, meaning that you need to be prepared to win the war if you want the home. One advantage you can give yourself is to get pre-approved for a mortgage by a lender. By doing this, the seller will be reassured that the deal will not fall through because of your inability to obtain financing. You may also need to be more flexible when buying real estate in a seller’s market. For example, you may need to be prepared to offer a larger earnest money deposit, move up or back the date of closing, waive contingencies, or offer to pay some of the closing costs in order to close the deal. Because your real estate agent knows the market, and how to negotiate a deal, it is crucial that you depend on your agent to guide you during the negotiation process.
Though a seller’s market may make the home purchase process a bit more challenging, an experienced real estate agent can help you level the playing field to ensure that you find and purchase your dream home.