Whether you’re currently in the process of selling or buying a home, you’ve likely heard all about the seller’s market we’re in as of this writing. But what exactly constitutes a seller’s market and, more importantly, how do you navigate it with ease?
Today, we’re offering up everything you need to know to find your way to your dream home—or secure top-dollar for your current property—in a market that favors sellers. Read on for our top tips.
First off, what exactly is a seller’s market?
That’s a great question! A seller’s market occurs when real estate inventory is low and buyer demand is high—ultimately putting sellers at an advantage. A few things you’ll notice in a seller’s market?:
Tips for homebuyers when navigating a seller’s market
Navigating a seller’s market as a homebuyer can be daunting—but, with the right information and agents on your side, finding a home you love is absolutely possible. Below are our top 7 tips for finding your way through a seller’s market with clarity and confidence.
1. Find the right agent: This tip is our first for good reason. There’s simply no substitute for a luxury real estate agent with experience when it comes to navigating a seller’s market. You want someone who has access to pre-market and off-market properties—and who has experience managing negotiations with multiple offers. You also need an agent who moves quickly and efficiently, as timing is everything in a seller’s market. You’ll need to tour new listings as soon as they hit the market, and—when you fall in love with a property—you want someone you can trust to get a competitive offer in quickly and work with agility throughout the bidding process.
2. Be proactive and prepared: In a seller’s market, you don’t exactly have the luxury of time on your side. Be ready to write a competitive offer as soon as you find the right place. Have your pre-approval and/or proof of funds ready to ensure a streamlined process—many listing agents don’t allow showings to a buyer who isn’t pre-approved or doesn’t have their proof of funds. Know that, if you’re in a position to make a cash offer—or a no-loan contingency offer—you’ll likely have an advantage.
3. Make a strong offer: The bottom line with a seller’s market is, as a homebuyer, you’re at a clear disadvantage. Now is not the time for lowball offers. You’re surrounded by qualified buyers who are also ready to pounce. If you’re serious about a property, make an offer that honors the value of the home and is attractive enough for the seller(s) to consider. Coming in too low is a surefire way to turn off sellers—especially during a time when some sellers are only taking initial offers or solely responding to the few highest offers.
4. Now isn’t the time to be demanding: Those very specific repair requests and contingencies? They unfortunately don’t have much of a place in a seller’s market. You want to make your offer as streamlined and appealing as possible. Oftentimes, asking for seller credits for repairs will result in a rejection if other interested parties are willing to accept the property as-is. Is a new A/C unit or roofing worth losing your dream home over? Only you can answer that. Know what you are and are not willing to lose the property over, and offer accordingly.
5. Look into an Escalation Clause: An Escalation Clause is a clause you can include with your initial offer that allows you to increase your offer by a set dollar amount (referred to as the “escalation amount”) over any other competing offers, up to a maximum offer price. If your escalation amount is $10,000—and the highest offer comes in at $800,000—the escalation clause would increase your offer to $810,000 (provided that’s not over the max offer price you set).
This puts you at an advantage for obvious reasons (yours will likely always be the most competitive offer, so long as other buyers don’t exceed the maximum price you’ve set). An Escalation Clause isn’t the right move for every purchase, though—so you always want to use discretion and, of course, check with your real estate agent to see if she or he recommends it for your specific situation. (Psst…you can learn more about Escalation Clauses in this Forbes article.)
6. Be open-minded and realistic: This is one of the most important tips we can offer! While you definitely want to end up in a property you’re comfortable and happy with, you may need to consider a wider vicinity of listings and homes that need some updating. An experienced agent will be able to help you figure out which of your must-haves are non-negotiable and which of your must-haves may need to shift to “nice-to-haves” as you consider the reality of the current market.
7. Be patient and don’t get discouraged: The toughest part of navigating a seller’s market is typically the heartbreak that happens when you’re outbid on a property you love. But remember—there will always be more homes on the market, and you may even find another home you love even more than the last. This is likely one of the biggest purchases of your lifetime, so you want to invest in something you’re excited about (even if it takes a few upgrades to get there). Don’t feel like you have to purchase a home that isn’t speaking to you just because you’re feeling impatient.
PRO TIP: Consider Compass Concierge for any repair costs that arise out of inspection results: Because we don’t recommend including contingencies or requests for seller credits as part of your offer in a seller’s market, you may have some repairs you’ll have to take care of yourself after purchasing. For those, you can always turn to Compass Concierge to secure an interest-free loan for the cost of everything from roofing and HVAC repairs to fencing and electrical work.
Tips for sellers when navigating a seller’s market
If you’re selling a property in a seller’s market, you have the clear advantage—so own it! That said, there are a few things to keep in mind to ensure you take advantage of the upper-hand in a way that serves you, without turning away too many buyers or accepting an offer that isn’t an ideal fit.
1. Enhance the showing experience: Selling a home when the market is on your side doesn’t mean you can let all caution go to the wind—it’s still important you clean, declutter, and organize your home to make your property even more appealing and drive up interest further. Not sure where to start? Browse our top home staging tips.
2. Stay away from over-pricing (yes, even in a seller’s market!): While it may be tempting to over-price, the far smarter move is to price your home at—or even slightly below—fair market value. Competitive pricing will attract more interest from buyers, which will lead to bidding wars, which will likely lead to a higher, over-asking final sale price. Remember: over-pricing deters buyers, and the longer your property stays on the market, the more questionable it appears to buyers, ultimately giving them more negotiating power.
3. Require pre-approval: For buyers who require financing (i.e. those who are not cash buyers), requiring pre-approval makes for a more streamlined process and can save you a headache down the line. Know that preapproval and prequalification are not the same. Pre-approval verifies a buyer’s credit history and debt-to-income ratio—whereas prequalification is simply an estimate of a buyer’s finances. Pre-approval is much more in-depth than the prequalification process, making it far more reliable.
4. Carefully consider offers: In some cases, the highest offer isn’t necessarily the strongest. If a buyer is planning on utilizing financing, know that a bank will only loan on the assessed value of the home determined by an independent appraisal. While a buyer may think they can pay a certain amount for a property, that doesn’t guarantee a bank will lend them those funds if the appraisal doesn’t come through. On that note, be mindful of contingencies—those contingencies give buyers power later on if, for some reason, a condition is not met via inspection, appraisal, finances etc.
5. Use Compass Bridge Loan Services: A bridge loan is a short-term loan that uses the equity from your current home to help you make an offer on a new one. This is an ideal option if you accept an offer on your current home before you have time to sort out or secure your own financing for your move. If you sell your home with a Compass Real Estate agent, you have the option to get up to six months of your bridge loan payments fronted.
Overall, navigating a seller’s market successfully takes a clear understanding of where your advantages and disadvantages lie—and, of course, the experience and agility of a professional luxury real estate agent on your side. We would be honored to help you navigate the nuances of the market and secure or sell a home in a way that’s both empowering and effortless. Reach out today, and we’ll kick things off with a conversation.
In the meantime, browse the rest of our Journal for even more tips, resources, and insight.
Whether it’s wanting the perfect Malibu home to plant your roots—or selling your property for a price you can feel great about as you move onto something fresh—we would be honored to guide you along the journey to your goals.
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Copyright 2020 Susan Cosentino & Co. is a team of real estate licensees affiliated with Compass RE. Compass RE is a licensed real estate broker and abides by equal housing opportunity laws. All material presented herein is intended for informational purposes only. Information is compiled from sources deemed reliable but is subject to errors, omissions, changes in price, condition, sale, or withdrawal without notice. No statement is made as to accuracy of any description. All measurements and square footages are approximate. This is not intended to solicit property already listed. Nothing herein shall be construed as legal, accounting or other professional advice outside the realm of real estate brokerage.