What is a seller’s market? A seller’s market is when there are more homes than buyers who can afford to buy them. This creates competition among sellers, leading to lower prices and higher quality. If you’re trying to purchase a home in this environment, four tips for buying to your best advantage.
Get a pre-approval letter from a lender.
If you don’t have a loan commitment, sellers may assume that you can’t afford the home. If they think this, there’s no way for them to be sure of your offer. The seller might prefer another buyer who has an approved mortgage on their desk because it is guaranteed money and assures the seller that your request will be accepted.
Be prepared to pay more than the asking price.
If you’re not willing to offer higher than the list, it’s probably best to stay out of a seller’s market. A buyer may think they are taking advantage of the competition by offering the below list; however, this strategy often backfires because most sellers will likely turn down your low-ball offer. You may even negotiate for extras like appliances or furniture. Still, it is important that you not include this in your contract because the seller will likely say no if they plan to sell all of their items with the house anyway. However, anything outside of these terms should go into separate contracts so both parties can agree upon them.
Provide all documentation requested by the seller
If you’re applying for a mortgage, your lender must submit everything to the underwriter before presenting it to the seller. This will save both time and money because if there are any red flags on your loan application (i.e., high debt-to-income ratio), they will know before wasting time on your offer. This is why it’s important to get a pre-approval letter well in advance of the date you want to make an offer. It allows for any adjustments that may need to be completed and leaves enough time for the lender to request documentation from you if they are missing anything.
Build in a contingency period
When making an offer, it’s important to give the seller time to review your documents and make sure they’re what was requested. During this point, you should be able to negotiate with them if anything is not as expected (i.e., price, conditions). If you need longer than usual because of circumstances outside of your control, you should include a contingency period in the contract. This is especially important if you are offering a home that has not been updated or remodeled recently. It can take time for your lender to process everything and finalize the underwriting before closing escrow.