With the continuation of the local seller’s market you will need to have a proper strategy for buying rather than just proceeding and hoping it will all work out.
A low inventory at the same time there is strong buying activity creates some potentially interesting situations for buyers. These situations have been coming up for the past couple years and will be present a lot in 2016 too so I’m going to share with you what I’ve found to be successful.
Buyers Competing Over the Little Inventory That’s Available
The first situation that can come up for buyers is that they find a house, condo or townhome that they want to buy only to have other competing buyers putting in offers at the same time. Having won 100% of the time in the past couple years when my buyers were one of mulitple offers a seller had to choose from, I know what sellers and their agents will look for an how to submit an offer that will be chosen ahead of others – and without paying too much for the property. However, the only reason we won in these situations was that my clients followed my advice and were prepared ahead of time in case we did run into this situation.
Financial preparation is probably one of the top 2 or 3 items necessary for a buyer to be successful in this kind of a situation. For a cash buyer this isn’t as involved but it will require having a bank statement or letter from your bank on its letterhead verifying you have the funds to make a purchase in the price range you are looking. It will also require that you have funds that you can access within a reasonable amount of time or that you can make liquid within a short timeframe. For a buyer getting financing this is probably the most important step to having any chance of success in buying during a seller’s market like this one.
Any buyer who will be using financing to make their purchase should only work with an experienced professional with a track record of getting loans through despite any hurdles that come up, when the buyer is really qualified. The loan originator also should be prepared to get you a loan commitment letter as opposed to a preapproval letter. In most cases, the seller’s agent and/or seller will consider a buyer with a loan commitment letter to be almost equal to a cash buyer. This is because a loan commitment letter requires that all of your documentation regarding your income, debts, expenses, employment, assets, liabilities, etc. be reviewed prior to it being issued. So essentially nearly all of the steps that would be done by the lender to approve you fully for a loan are done in order to be able to issue the loan commitment letter. From that point on, the matters that will be looked at to do a final loan approval will be almost all about the property itself (such as the appraisal, getting an insurance policy, etc.) which is the same as for a cash buyer.
So having a valid loan commitment letter from a respectable loan originator will give you tremendous leverage and is something that I feel is required for any buyer in this market.
The other necessary item for a buyer to be successful in this current market is an ability to decide quickly once all needed information is provided. Even though the multiple offer situations are not as prevalent as they were a couple years ago, they do come up and with inventory hitting even lower levels than previously it is more likely they will come up again especially during the strong buying months in the Spring and Summer.
Even when there isn’t a multiple offer situation, it is important to act quickly and not delay when you find the right property – if it is reasonably priced. That is because delays in submitting an offer can open the door to other buyers viewing the property and then creating a multiple offer situation where there hadn’t been one previously. I’ve also had a situation where it took so long to get a client to submit an offer that by the time we did the property had already gone under contract with another buyer when just 5 days before they hadn’t even had any other offers in.
Bottom line is that I’m recommending you act quickly so that you don’t create any more difficulties than already exist. Now this doesn’t mean to act hastily and in such a way that you will later regret what you’ve done – the info you need to make a proper decision can usually be obtained fairly quickly. I also don’t feel you should act quickly if the property is obviously way overpriced such as a home that is priced $200,000 above what everything else in the community has sold for without much difference in size, upgrades or amenities. However, don’t assume that because a property has been on the market for a longer time than most that it is obviously overpriced or that you don’t have to act quickly – in the past several years I don’t have enough fingers and toes to count how many times my buyer client had this exact situation only to have that property go under contract either before we got to see it or before they were able to act on it. I’ll be happy to help you work out which properties should be acted upon quickly and which shouldn’t but all still depends on you being certain that the property you are interested in is and will be right for you.
Sellers Stubborn on Price
The second situation that comes up in this current seller’s market is having to negotiate with sellers who are rigid about their price.
I’ve been involved with this type of situation on both sides and there are basically 2 categories of sellers who are stubborn.
The first category is the seller who has overpriced their property and is not even within a range that would be considered reasonable. In some cases they may know this and say that they are in no hurry to sell and are just waiting for the market to come up to where they want it. When you have a seller who is truly in this category then you should not waste your time on them. They are not really ready to sell and are wasting everyone’s time. Their property is actually what I call ‘false inventory’ because it is not truly a property for sale at this time even though it appears like it is. Walk away and forget about these.
The second category is the seller who has a property that is of such a quality or is in an area where few properties become available and they want more than what market value seems to be but are not too much out of a reasonable range and/or are willing to negotiate to a price within a reasonable range. In the current low inventory seller’s market, a reasonable range might be above ‘market value’ depending upon the quality of the property, its location, availability of properties in similar condition in that area and demand.
I’ve been involved in deals on both sides with a seller in this second category and if they are not in a position where they have to sell for any reason, they will most likely be able to get close to what they want even though it will probably take longer than if they priced their property more along the line of what is considered ‘market value’ range.
The key in this situation is being able to recognize and determine whether you would be getting a higher quality than what is typical and what is really key is whether the property is worth the price TO YOU. In some cases it will be and in some you may need to move on. But this second category does require a deeper look than the first stubborn seller category and you should make sure you look at it from all angles to make the right decision for you.
If you are a buyer in this current market it does suck that you might have to deal with difficulties in finding something right for you that you can afford or is within the price range you set, and it does suck that you might run into either or both of the situations I described above.
However, being upset or angry or frustrated over what is occurring won’t really get you anywhere so my advice is to either 1) wait until the market changes or 2) follow my advice above and be prepared to take on this market as an informed and prepared buyer who knows they can succeed if they do the right things and have an agent who knows the right way to play this market.