For a couple of years now, we’ve been in a hot housing market. Since 2019, US home prices have increased 15.1% year-over-year, while the number of homes sold has steadily decreased. And this trend is not slowing down anytime soon.
Zillow expects home prices to rise by another 14% in 2022. A lot of this increase in prices can be explained by a lack of homes on the market. New construction is down due to labor shortages and supply chain issues like the lack of lumber. So prices go up in response.
It’s a seller’s market—which means there’s more demand for housing than there is supply. Fewer houses on the market means fiercer competition among buyers. And fiercer competition among buyers means houses go quickly. In 2020, for example, a house stayed on the market for an average of only 25 days.
But what if you’re looking to buy a house? Should you wait out the stormy waters or is there a way to navigate them? If there’s one thing you can count on, it’s that timing the market is impossible. You’ll never know the perfect time to buy. So you might as well buy when the timing is best for you.
So here are 11 tips for increase your chance of closing on a deal in a hot market:
1. Prepare early
Before you start house hunting, get clear on what it is you want. Narrow down your budget, the type of house you want, non-negotiables, and nice-to-haves. Then get your finances in order. Aim to have a 6-month emergency fund, no other debt, and a good credit score. This will allow you to buy from a stable financial position.
2. Get an experienced real estate agent
Next, hire an experienced real estate agent. They should have their real estate license and know the area like the back of their hand. That way, they can help you find deals and act on them fast. But you’ll need to give them a clear description of all your house criteria. Otherwise, they’ll have to call you every time a deal comes up to clear it with you. And by that time, the deal could go to someone else.
3. Shoot, then aim
You know the common phrase “aim, then shoot?” Not so in a hot real estate market. Since houses go so fast, there’s little time to deliberate on a deal before the opportunity passes. So to avoid missing out, get all your ducks in a row beforehand and then have your agent pull the trigger on any deal that meets your basic requirements. That way, you’re more likely to beat the competition to the offer. You can always back out later within the contingency period (usually 30 to 60 days) if you decide it’s not a great deal after all.
4. Show a pre-approval letter
Sellers want to know your offer will go through before they take their house off the market. One way to shore up their confidence is to show them a pre-approval letter. This is a letter from your mortgage lender that guarantees they’ll lend you a certain amount. Usually, the letter is good for 90 days.
5. Waive the appraisal contingency
Normally, buyer’s include an appraisal contingency in their offer, which allows them to negotiate the purchase price down or walk away from a deal completely if the appraisal value turns out to be lower than the purchase price. But in a hot market, homes usually sell for more than the appraised value anyway. So by eliminating the appraisal contingency, you help streamline the buying process and make the offer more attractive to the seller.
6. Put down more cash
Having to finance the home purchase makes you less competitive. That’s because there’s always a chance you won’t be able to secure the mortgage and the deal falls through. So the more you put down, the less of a risk you are to the lender and to the seller by extension. To show you’re serious, you can also make a large earnest money deposit. Basically, the more skin you have in the game, the better.
7. Don’t ask for seller concessions
In a buyer’s market, it’s common to ask seller’s to bear some of the closing costs. However, this is rarely a good idea in a seller’s market. Most sellers have multiple offers on the table, so if you ask them to pay some of the closing costs, they’ll just move on to a buyer that’s willing to bear all the closing costs.
8. Don’t fret over cosmetic issues
It’s unlikely that you’ll find the perfect house. Chances are there will be some minor imperfections or things you want fixed. But don’t ask the seller to do it or they’ll just sell to someone willing to buy the house as it is. Instead, budget for the cost of repairing and renovating after the purchase. This way, you don’t risk losing the deal. But that doesn’t mean you should tolerate major problems like a hole in the roof.
9. Sweeten the deal
Again, most homes sell above asking price in a seller’s market. So to sweeten the deal, offer more than what the seller is asking for. You can even add some cash on top of the official offer if you’re concerned about the competition.
Another thing you can do is include a personal letter to stand out. Include a treat like some homemade cookies as well. Keep it short and be careful not to reveal too much about you. Otherwise, you could accidentally violate the Fair Housing Act, which prohibits housing discrimination based on race, color, national origin, religion, sex, familial status, and disability.
10. Be patient and persistent
Lastly, be patient and persistent. In 2021, homebuyers had to make an average of 5 offers before landing a deal. So don’t get discouraged if your first few offers don’t get accepted. Just keep saving your money and don’t give up. Over time, you’ll learn how to perfect your offer and the right deal will come.