7 Tips for Buying in a Seller's Market

High demand and a housing shortage have home buyers facing stiff competition for what little inventory is available. House hunters everywhere are finding themselves outbid, even when offering well above the seller’s asking price.

And while the market may loosen up a bit later this year as mortgage rates continue to rise, experts are predicting 2021 will remain a seller’s market.

It might seem like buying a home in a seller’s market is nearly impossible, but don’t lose hope.

Here are a few tips for getting to the finish line in a seller’s market.

1. Work with an excellent agent

You want an experienced real estate agent in your corner to act as your advocate and advisor. A good agent has valuable connections, market knowledge, and can help you create a competitive offer with all those great negotiating skills when the time comes. 

For first-time buyers, the process can be especially daunting, but a seasoned agent will guide you through the ins and outs and away from potential pitfalls. Online tools such as Redfin are a good way to get a sense of a home’s market value, but they’re no substitute for the real-life strategy an agent can offer.

Look for a professional who is highly familiar with the area you’re interested in and ask for referrals. Ask about their access to properties before they’re listed, and find out what experience they have with closing deals in a competitive market.

Buying in a fast-moving seller’s market can be an emotional roller coaster. A great agent will know how to keep calm and carry on, saving you time and stress.

2. Know your budget

Set the upper limit of your budget before heading into the home-buying process and resolve to stick to it. It’s all too easy in a seller’s market to get carried away in a bidding war that’s spiraled beyond what your budget can comfortably handle, resulting in years of financial stress and strain.

Targeting homes that are under your budget will allow you wiggle room to bid up if you need to, while keeping your future mortgage reasonably within your budget.

3. Understand the bidding process

A seller’s market is a fast-paced moving target. Staying glued to online websites for accurate information and alerts is a must, but be prepared to move quickly when a new listing pops up that meets your criteria. Expect to offer more than the asking price in order to compete with the multiple offers in the current market.

Now is not the time for a lowball offer, like you might make in a buyer’s market. Offers that are under asking price are not likely to be given serious consideration from a seller who has dozens of offers to choose from.

4. Make a competitive offer

Offering over the asking price is just one way to stand out in a competitive market. If you’re in a financial position to do so, making an all-cash offer is a smart move, as cash transactions tend to be quick, clean and free of contingencies and highly attractive to a seller.

Most buyers, however, are not prepared to pay cash for their next home. Show sellers you’re serious with a pre-approval letter from your lender, so they know you’ll be able to secure a mortgage and see the transaction through to the end.  You might also consider offering a heftier earnest money deposit to further increase your credibility with a seller.

In the event you do find yourself in a bidding war, you can include an escalation clause with your offer. An escalation clause essentially says that you’re willing to up your offer by certain increments, up to a point, should another buyer make a higher offer.

5. Waive contingencies and make concessions

Your goal is to come to the table prepared with a generous offer that is quick and clean. Waiving contingencies can be the little extra that gives your offer an edge, but keep in mind that waiving contingencies is not without risk. If you forgo an inspection contingency, for example, only to find out the home has serious issues, you may lose your earnest money if you choose to walk away. Keeping contingencies reasonable offers you protection even in a seller’s market and keeps the process moving forward.

This is also not the time to present the seller with a list of special requests or changes you’d like to see made to the home or to ask for them to cover a portion of closing costs. Instead, be prepared to accommodate the seller’s needs by being flexible on the closing or date-of-possession, for example.

6. Know that it’s okay to walk away

Buying a home has a major impact on your financial future. It’s okay to put home-buying on hold if you feel uncertain or are in a position to wait. You may want to pay down debt such as student loans, rather than defer, to increase your buying power, or you may simply want to wait until the market cools.

Just because it’s a seller’s market doesn’t mean you should disregard the typical reasons a buyer might walk away from a sale. A low appraisal, poor inspection, issues with the title search or simply a gut feeling that the house isn’t right for you are all valid reasons for backing out of a sale.

7. Stay positive

Buying in a seller’s market can be both frustrating and thrilling; it’s easy to lose heart, especially if you’ve lost more than one bidding war. Stay alert for new listings, be flexible and organized, and work with an agent to create the best possible offer. You’ll be sitting at the closing table in no time.

This is a guest post by Kristen Herhold. Kristen is the PR editor at Clever, a real estate data firm. In her free time, she enjoys reading, traveling, and cheering on the Denver Broncos and Missouri Tigers. Connect with Kristen on LinkedIn.