In case you haven’t noticed, it’s a strong seller’s market out there. A low supply of homes coupled with high demand has a way of putting seller’s in the driver’s seat. Unfortunately for buyers, this means that sellers call the shots, for the most part, and buyers are expected to fall in line accordingly.
If you are looking to buy a home in a strong seller’s market, one of the best things you can do is have a realistic outlook on how this will impact you and your house search.
Here are my suggestions to help you understand the realities of buying a home in a seller’s market.
Reality #1: You will lose a bidding war, or two, or ten.
Most homes that go on the market in hot neighbourhoods are using the popular line “Offers will be reviewed next Tuesday at 8pm.” As a buyer, you hate seeing this because you know it means the sellers are hoping for a bidding war. But as a seller, I don’t blame you one bit for utilizing this technique. If you can hold back offers for a week and try and get as many people through your home in that time as possible, in the hopes of getting multiple offers, why wouldn’t you!? The sooner buyers accept the fact that they will face a bidding war, or two, or ten, in their home search the sooner they can move on to strategizing on how to best prepare to win that bidding war. (Hint: it’s not always about paying the most money for the house). Saying “I don’t want to buy a house if it means I have to compete in a bidding war” will leave you with even fewer houses to choose from in this market.
Reality #2: If you make an offer the first day a house goes on the market, it better be a good offer.
Sellers are picky, and in a seller’s market they get to be. Sellers want to receive an offer for full asking price (or maybe higher), they want the closing date they asked for, and they want no conditions in the offer. It doesn’t mean you have to give this to them, but it also doesn’t mean they will feel inclined to accept your offer. Let’s say a great home came on the market yesterday in your preferred neighbourhood. It’s priced at $499,900. I do my research and let you know that in the past three months there have been four comparable homes that have sold, and their sale prices range from $490,000-$540,000. All four of these homes sold after less than a week on the market. So judging by this, we know we have a hot neighbourhood with homes at a hot price point, and the homes are selling quickly. If you see the house today and decide you want to submit an offer, you will want to make sure it’s a strong one (not a lowball offer). Otherwise, why would the seller be foolish enough to take your offer when their home is new on the market? They know it’s just a matter of waiting another week likely before another buyer(s) comes along to offer them a better price. If you’re serious about getting the house, you have to be prepared to give the seller an offer they can’t refuse.
Reality #3: If you are house hunting on weeknights or weekends, you will very rarely see a house alone.
Two weekends ago I was showing homes on a Saturday morning and for two homes that my clients and I went to, there were actual line ups in the driveway. Other agents and their clients were all waiting to get in and see the house. While you might not face a line up, you can expect that if you are house hunting during prime times (weekends and weeknights) that will likely mean you should expect to share the house with other eager buyers and their agents too.
Reality #4: You need to be ready to act quickly.
Have all your ducks in a row before you start house hunting so that when you find “your home” you can jump on it right away. Have your deposit funds in a bank account that you can access with no delay. Be willing to do a home inspection on the house before submitting an offer so that you don’t need a home inspection condition in your offer. Have an up to date mortgage pre-approval. If I am going to be showing clients a home that I think they will really like, I prepare the offer in advance and bring it with me to the showing. This way, if they do decide they like the house and want to submit an offer, they can do so right at the dining room table. Also, I’ve had clients meet me on their lunch break if I see a house has come up for sale in the neighbourhood they like. Waiting until they get off work to see the house could mean someone else has already snatched it up.
Reality #5: Be prepared for homes to sell for way over the asking price, but understand why.
It’s true – some homes are selling for above what many would consider is their true market value. However, a lot of homes that are selling significantly over their asking prices were underpriced to begin with. In Toronto, it’s common to see a home listed for $799,900, but end up selling for $900,000-$920,000 on offer night. A home owner could put their home up for sale at $599,900 knowing full well they won’t accept an offer of less than $640,000. If they don’t get the price they had in mind they will just re-list the home at a higher price, say $650,000. It’s misleading and can be borderline unethical when asking prices are significantly lower than what the home is actually worth. It gets buyer’s hopes up, creates a buzz, can get multiple offers, and then ends up with a happy seller and several deflated buyers. If your budget is $800,000 and you see a house listed for $799,900, it doesn’t necessarily mean the house will sell for anywhere close to this amount. That’s why you need a real estate agent who can do the homework for you and give you the inside scoop.
Reality #6: Bully offers happen. You might be one of them.
What happens if a home is put on the market on Monday, and the seller is not receiving any offers until Sunday evening, but a buyer says “To heck with that, I want to submit an offer now!!!”? This is called a bully offer - a buyer submits an offer prior to the offer deadline and then tries to bully the seller into accepting their offer instead of waiting until offer night to see what other buyers are offering. Playing into the whole “a bird in the hand is worth two in the bush” philosophy. If you are going to submit a bully offer it should be strong (read: high price, exactly the closing date the seller wants, and no conditions). After all, it needs to be motivation enough for the seller to feel satisfied accepting your offer and not wondering “what if I could have gotten more?”
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