Northern Michigan's real estate market has become a seller's market. As a buyer, you're looking for your dream home - or at least, a "good for now" home - and discovering there's not a lot to choose from. You find homes with potential. But the same potential that you see in a home is seen by countless other homebuyers as well. And in a seller's market, the competition between you and those other homebuyers will be fierce.
It can be such an aggressive competition, in fact, that those houses where you see potential are gone before you have much of a chance to really consider them. It can be so frustrating that you might even reconsider buying. But when you consider that it could be years before things shift into a buyer's market, sitting back to wait may not be a viable option either.
Instead, think about these simple yet effective ways to buy real estate in a seller's market without losing your mind - or spending more money than you need to.
Be prepared with pre-approvals
In a seller's market, the property won't last long. So it's critical that you're ready to go when a property you might want hits the market. The first step to this is having a great real estate agent who can alert you to a great property or help you get the details on the one you've found yourself.
The next step is being prepared with proof of fund and a pre-approval letter. These both show the seller that you are not only serious but fully prepared to follow through on your offer and buy their home. This can give the seller a stronger sense of security in accepting your offer.
But perhaps the most important part of being prepared is keeping a close eye on the real estate listings. Properties can come and go in the blink of an eye in a seller's market so you'll need to be checking frequently to find what you're looking for.
Be choosy with your contingencies
If you've purchased real estate before, you've likely been cautioned to include contingencies. You've been told to include a contingency that the sale only happens if it passes inspection, if your house sells first, if the seller is willing to repair specific issues, and/or if the appraisal doesn't meet the negotiated value. You're going to want to ignore at least some of that advice in a seller's market.
Sellers see contingencies like these as just another place where the deal can fall apart. The more contingencies you have, the more chances for them to lose out on selling their home. So they'll move on to another offer with fewer or even no contingencies.
Contingencies are meant to protect you in the purchase of a home. But to buy in a seller's market, you're going to need to take some risks. Consider the usual contingencies and ask yourself which ones you can let go of and which ones you absolutely must-have. Then simplify the offer by limiting yourself to only the ones you must have - and even then, be sure they're true deal breakers.
Let your cash do the talking
Everyone knows cash is king. And this is especially true when it comes to real estate. A cash offer is going to make a seller sit up and take notice. It's the quickest, most fail-proof sale possible for the seller. If you can make a cash offer, you'll have a huge advantage over your competition.
Even if you can't make a full cash offer, consider other ways to let your cash do the talking. You might increase your earnest money offer, for example. Another instance where you might use cash to seal the deal is in the event of a low appraisal. If the purchase price is much higher than the appraisal, the loan may not be approved for the higher amount. Offer to pay the difference in cash and you just might sway the seller.
Offer the listing price at a minimum
In a seller's market, you should feel a sense of urgency and it should stop you from presenting lowball offers. You need to make a strong offer right out of the gate. At the absolute minimum, you'll want to offer the listing price. Anything lower is likely to be completely ignored.
The listing price is the bare minimum, though. If you really want this particular property, consider coming in above the asking price. It's extremely unlikely that any home you bid on will have no other offers. This means you always need to assume you're competing against other buyers.
Asking your real estate agent for some guidance here can be helpful. While they can't give you details on the offers other buyers are making, they do know the market. They can tell you how much similar homes have been selling for and how much they were originally listed for, guiding you to make a stronger initial offer and giving you a better chance of acceptance.
Sweeten the deal with non-price considerations
You want to leave out contingencies like needing to sell your home first or the appraisal, but one way to sweeten your deal is to offer some other contingencies that work in the seller's favor.
This can be as simple as offering them extra time to move out after the sale closes. You might even offer to rent it back to them, allowing them plenty of time to find a new place to live. You might also agree to longer periods for the inspection or appraisal or even for closing. Think of what you might be able to offer the seller that others might not.
Another way to persuade a seller is with an offer letter or video. The sale of a home isn't just about the money. Many sellers are sentimentally attached to their homes, having raised families or gone through other emotional events in them. They're not just selling you a plot of land and a building or two, but their memories. Writing a letter or crafting a video that uses emotion to persuade them that you are the right person to buy their house just might be what gets your offer accepted - even if it's not the highest.
Include an escalation clause
You don't want to underbid and miss out, but you also don't want to overbid and pay more than necessary to buy a home. How do you find that middle ground where you offer enough to persuade the buyer but don't lose a ton of money either? By including an escalation clause.
An escalation clause basically tells the seller that you're willing to pay more than the highest bid they receive. It might indicate that you'll pay a percentage, like 2-5%, more than that bid. Or it might indicate you'll pay a set dollar amount, like $10,000, more than the highest offer. It also indicates the maximum you're willing to offer, a price cap that protects you from spending more than you can afford or than your loan is approved for. This does two things: gives the seller incentive to re-consider your offer and allows them to share the highest bid with you.
Of course, an escalation clause does have a couple of drawbacks. One is that if the highest offer is too high, and your price cap too low, you may not be able to outbid that higher offer. The other is that it tips your hand to the seller, letting them know what you can afford. While there's not much room for negotiating in a seller's market, this does take away any negotiating power you might have held.
An escalation clause can help secure a deal. But given the drawbacks, you may want to limit it only to a property that you deeply desire rather than just any random home that fits your needs.
Buying a home is more than just buying a home. It's buying a future: future memories, increased home and neighborhood value, a good education for your kids, a safe neighborhood to raise them in, and more. In a seller's market, everyone is fighting to buy that same future. And it's easy to get wrapped up in the ferocious competition and start making blind offers in an attempt to secure the home and future, that you want.
Buying a home in a seller's market can be difficult, but don't let the pressure get to you and cause you to get carried away. Buying a home is a huge investment, both financially and emotionally. If it's not your dream home, it might be better to let it go and move on to the next one. But if it is your dream home, these are the best methods to take it from dream to reality.Posted by Brook Walsh on