In my little part of the real estate world, the real estate market is hot. Open houses are flooded with 40 – 50 buyers in an afternoon, with multiple offers that Monday or Tuesday. It is undoubtedly a red hot seller’s market.
I also hear from many of my counterparts across the country and hear similar news. The real estate market is a hot seller’s market in many countries.
Unfortunately, its not all that fun to be a buyer in a hot seller’s market.
But for most home buyers some factors make it the right time to buy. It could be expanding a family, looking for the stability of owning a home, finding it costs the same as renting, etc… Whatever reason the timing is right to either move up, downsize or become a first-time home owner.
A hot seller’s market definitely presents challenges for home buyers and there are things that home buyers do that can hinder their own home buying success.
9 Mistakes Home Buyers Make in a Hot Seller’s Market
Not Fully Understanding the Market You Are In
Understanding current market conditions is very important, regardless of what market you are in. Many buyers enter the market and find a house they like and ask how much of a discount they can expect during negotiations.
My response will be to slap them across the face and ask them if they are mad!!
Just kidding. But have you not been paying attention? We were tripping over 30 people in the house during our showing and I sent you market stats. Did you not review them?
Sit down with your agent and review market statistics so you can get an understanding of what the current conditions are for your local real estate market.
In the Massachusetts MLS there were about 9000 single family homes on the market in the past year. Even in the peak of the market in 2005 there were over 15,000 homes. Inventory is very, very low.
Furthermore, in one of my local markets of Tewksbury MA homes are selling at 100% of the original list price as opposed to 2009 homes were selling for 92% of list price.
The underlying fact is we are seeing a market we have never seen before. Buyers are forced to compete hard for houses.
Market conditions will dictate how you look for homes, what you pay for a home and how you negotiate a contract and home inspections of a home. Get an overview of of how current conditions affect your purchase.
Not getting into properties right away
If you are serious about buying a home in this market, you need to get in the home within a day or two of it coming on the market. When you are in a seller’s market the average days a home spends on the market is very low. Don’t call on a Monday, expecting a showing for Saturday. It will most likely be sold already.
Find a way to get into the home immediately; don’t wait. If you can’t, hopefully, your buyer’s agent can preview a home for you and let you know if it is worth dropping everything to see or not.
In this current market, time is of the essence. Getting in right away allows you to decide and do any of your due diligence on the home.
Not Writing Offers
Write offers on homes you like.
Just because you may be competing with other buyers with multiple offers, does not mean you shouldn’t try. Determine your numbers and stick to it. Not every home that has multiple offers goes over asking.
The reality is if you want to buy a house you’re going to lose some. I have worked with some buyers where it took 12 offers before they purchased a home. But now, it is like this for every other buyer in this seller’s market.
I can guarantee you that if you never write an offer, there’s a 100 percent chance you won’t buy a home. Take that chance, write an offer and put your best foot forward. Remember someone is going to buy a house, it might as well be you.
The biggest reason I hear for not wanting to offer is that the home buyer is afraid of overpaying. But let me put this in perspective for you.
If a home has multiple offers, a group of buyers have stood up and said I want this home! You know you can turn it around and sell it for pretty much what you paid for it. There is already a demand for your house.
Does it make you feel better to negotiate $12,000 off a home that no one else is bidding on or wants that has been sitting on the market for 4 months?
Waiting to Buy a Home
Some home buyers think waiting is going to change something for the better. But in most circumstances, there can’t be anything farther from the truth.
I watched home buyers in the early 2000s “wait” and they missed their opportunity. The same will happen again.
There are three reasons home buyers think waiting is going to help.
The market will turn around and prices will drop
Let me address the market turnaround first. While yes real estate markets go up and down, I don’t think we will see a catastrophic crash causing prices to drop drastically. We will see that the market will become more balanced and homes will only appreciate slightly every year. But still, prices will rise at a far more moderate rate.
Waiting for the market to turn around and prices to fall is called market timing. And market timing is not an easy thing to do and rarely works out well for anyone.
They will save more money so they can buy what they want or they will wait till something better comes along
Home appreciation varies from town to town but it is not unusual to see many towns around me seeing homes appreciating at 7% a year.
Take a $400,000 home. Next year if prices appreciate accordingly, those $400,000 homes, that weren’t acceptable to you, will now be selling for $428,000. And, now a year later you will be looking at what were homes in the $375k range now selling for around 400k.
On top of it, you want to jump into a better home by saving more money. Can you truly save $50,000 in one year? First, you just have to cover the appreciation of the home and then save at least a minimum of 5% to get into another class of home.
Compound that with interest rates rising. It is predicted that interest rates will rise by about half of a percent in the near term. Every 1/8 of a point in interest rate translates to $8 per 100,000 borrowed. A $400,000 home today will cost you $128 more a month in mortgage payments.
So to buy the same 400,000 home you can buy today will essentially cost you $428,000 and you will be paying. If interest rates your rise a half of percent your buying power a year later is essentially $355,000.
Every month that goes by you lose buying power.
Not Being Realistic
Searching for that home that doesn’t exist or what I call chasing unicorns, will just cause frustration and waste valuable time. What your sister bought two years ago or what your friend bought a year ago probably doesn’t exist.
A quick search of sold homes in the past year will help you find where your reality lies.
For example, I had a woman who wanted a condo with 2 bedrooms and 1.5 baths in certain communities… a huge section between Boston and the NH border. There was one undesirable condo that she didn’t want. I told her she needed to adjust her expectations. She said she would wait. I checked back a year in the sold history and told her that only 3 such properties had sold and that the chances of one coming up again were probably not a reality. She still did not want to accept her reality.
Deal with the inventory that is in front of you. That is your reality. If you see 10 -15 houses in a specific price range in a given community, this gives you a great indication of what is available.
In a seller’s market, you don’t have the luxury of mulling over a property for a week, going back another one or two times and bringing Mom and Dad to see. The market is just moving too fast.
You must be ready to pull the trigger when the right house comes up. Even sleeping on a house overnight can cost you the home you want.
Being Too Focused on Price
In no means am I telling you to run out and overpay for a house? But in a seller’s market, it is not unusual for homes to sell at or over asking.
In the past 3 months, 41 single-family homes sold in Tewksbury, MA. 23 of those 41 sold at asking or over asking. While most were no more than $5,000 over the list price, some went as high as $50,000 over. Another seven sold for within $5,000 of the asking price.
Remember, fair market value is a range it is not one number. In a seller’s market, you will be paying towards the top end of the range. Have your agent run numbers and see what that range is for a given home.
What is $5-10,000 at the end of the day…. $25-50 a month in payment.
Not Working With A Seasoned Professional
Align yourself with a seasoned buyer’s agent who will represent your best interest. A seasoned buyer’s agent knows the market but more importantly, knows how to handle the market.
They can impart the wisdom of 100’s of transactions into your home purchase. Different negotiation styles need to be used in different real estate markets but also on different properties. A buyer’s agent will help you formulate a plan that gets you into a home you like.
Not Putting Your Best Foot Forward
Many buyers think they should negotiate like it is 2009….. start your offer price way below asking and meet in the middle. This is a huge mistake for most homes in a seller’s market. You will be writing offer after offer with no results.
First, you have to remember you are competing with other buyers. You don’t have the luxury of time on your side and you can’t drag out negotiations for days. Another buyer will come along and best you.
Also, when it comes to multiple offers, buyers are of the mindset a seller will come back and ask for the final and best. But that is not true, a seller can handle multiple offers anyway they want. They can just pick the best one, decide to negotiate with a few, ask for the final and best, etc….
If you like a home, put your best foot forward right away. Show the seller you are serious and get the house under contract.
Final Thoughts On Mistakes Home Buyers Make In A Hot Sellers Market
For whatever reason you find yourself buying in a seller’s market and the timing is right for you. It is not easy for a buyer in a seller’s market. You need to be diligent and focused if you want to buy a home.
The alternative is stay put or to pay ultra high rents.
Do you want to keep paying your landlords mortgage or start down the path of paying your own mortgage and building equity for yourself.
The good news if you are selling to purchase another home you will reap the benefits of a hot sellers market on the selling side.
Other Home Buying Resources:
- John Cunningham Closing Costs When Buying a Home
- Lynn Pineda How to Buy a Home in a Seller’s Market
- Bill Gassett Real Estate Terms Buyers and Sellers Should Know
- Kyle Hiscock Buying a Home in a Sellers Market
- Michelle Gibson 4 Reasons You May Not Be Able to See that Home Right Now
- Jeff Nelson Buyer Etiquette When Looking at Homes
9 Mistakes Home Buyers Make in a Hot Seller’s Market is written by Kevin Vitali of EXIT Group One Real Estate.
If you would like to sell your home or buy a new home give me a call at 978-360-0422 and let’s get the process started.
Real Estate Services in the following areas: Northeast Massachusetts, Merrimack Valley, North Shore and Metrowest. Including the following communities and the surrounding area- Amesbury, Andover, Billerica, Burlington, Chelmsford, Dracut, Groveland, Haverhill, Lowell, Melrose, Merrimac, Methuen, Middleton, North Andover, North Reading, Reading, Stoneham, Tewksbury, Tyngsborough, Wakefield, Wilmington, Westford