- If you're trying to compete in a fast-moving market, consider looking below your targeted price range so you have room to increase your offer if need be.
- Local experts may be your best guides on what it takes to put together a compelling offer in your specific area.
- Don't focus only on the hot new listings. Check out stale listings too, and keep your ear to the ground in case any private sale opportunities turn up.
Frustrating? Punishing? Humbling? It's hard to come up with a single word to encapsulate the current housing market, from a buyer's point of view.
On the one hand, sales are booming. In 2021, existing home sales hit their highest level since 2006.1 Home prices are soaring across the country—rising 19% over the year through November 2021.2
On the other hand, there's almost nothing to buy. At the end of last year, the inventory of homes for sale hit an all-time low. Sliced another way, there were only 1.8 months' worth of supply on the market1 (while a balanced or healthy market is generally seen as having 6 months of supply).
It's possible the 2022 buying market could offer some reprieve. For example, rising mortgage rates might push some would-be buyers to reconsider. But it may also just bring more of the same, with buyers aggressively competing over crumbs of inventory, and new listings getting snapped up in days (or in some areas, hours).
Short of driving a dump truck full of cash up to the negotiating table, how's a serious buyer to compete in this market? And what about staying safe and managing risk when you're in the midst of high-pressure bidding? Here are a few tips for buyers to consider.
1. Lay a solid foundation for an offer
If you've been in the market for some time, then this may be old news: Solidify your financial position as much as possible, so that if the right house came on the market tomorrow, you could make a strong offer that same day.
That may mean spending some time working on your credit score, getting preapproved for a mortgage, doing some hard numbers-crunching on what you can afford, and making sure that your down payment is all that it can be. It may mean looking into any programs that could help you, such as loans insured by the Federal Housing Administration (aka FHA loans) if you're a first-time buyer, or loans insured by the US Department of Veterans Affairs (aka VA loans) if you're a veteran.
And of course, it means getting to know your area inside and out, including what slices of the local market are most competitive, how quickly prices are moving, and what the playing field is like in your price range.
2. Get realistic
If bidding wars are common in your area and most houses sell for over asking, then consider looking below your price range. That way you'll have plenty of wiggle room to come in with a competitive first offer, or potentially increase your offer, if you face tight competition. Similarly, think hard about whether any features on your "must-have" list could really move to your "nice-to-have" list. Although it's never fun to have to lower your expectations, it may be better than overstretching your finances to land your "dream" house.
Try also to bring a realistic eye to tours. It's easy to get dazzled by fresh landscaping, Instagram-perfect decor, and sparkling cleanliness. But after you move in it will still be the same-old weeds, your same-old stuff, and (for many of us) the same-old mess you're looking at every day. Focus on the big things, like whether it's the right amount of space, with a yard and location you can live with, and generally in good repair. Fixing some creepy wallpaper or tired carpeting is fairly easy, in the grand scheme of things.
3. Don't write off old listings
Listings can turn stale even when a home has no underlying problems. Sometimes the first buyer's financing falls through. Sometimes the initial listing price is off the mark, spooking potential buyers. Sometimes, it's just bad luck.
Don't assume that an old listing is a lemon (just like you shouldn't assume a hot listing is flawless). Do your own due diligence and come to your own conclusions about every property.
4. Get local expertise on how to make a winning offer
To be sure, there are plenty of wild stories out there about buyers waiving all contingencies and making offers 6 digits over asking. But what matters for you are the dynamics in your local area. Focus on getting great local intelligence on what makes a winning strategy in your market by talking to multiple agents and other local experts.
5. Get creative
Waiving contingencies isn't the only way to sweeten the pot. Some sellers might be swayed if you offer a speedy closing process, like if they've already moved out (this can also indicate you're serious about wanting to close). Other sellers might not have their own next home lined up. In that case, consider offering a rent-back—which gives your sellers the option to continue to live in the home as renters for a limited period of time after closing (often, up to 60 days).
While you're house hunting, also keep an ear out for any sellers who might be willing to do a private sale (i.e., without listing their home). After all, staging a home for photos and tours and working with an agent can be expensive (and stressful), and some sellers might be happy to skip the listing process. If you're comfortable doing so, consider networking at a neighborhood party or posting on social media about your house hunt. Some agents may also be able to look up expired listings (i.e., sellers who listed their home for a period but never ultimately sold), to gauge if they'd be willing to reconsider selling.
That said, if you do end up going with a private transaction, don't skip out on due diligence or the formal steps in the process. It's best to work with a real estate attorney to complete the transaction, check that you're following any local laws, and facilitate placing funds into escrow. You'll still need title insurance to protect your purchase, and you'll still generally want to complete a thorough inspection.
6. Pace yourself
House-hunting is exhausting. Falling in love with a home and going all-in on an offer, only to then be outbid, is emotionally draining. If the market is wild in your area, try to approach the process as a marathon, not a sprint. Make sure you're not pouring all your energy into your search, and consider taking a breather if you find the stress is getting to you.
7. If all else fails, try rethinking your strategy
Maybe you're dead set on ownership, but the local market seems dead set on blocking you at every turn.
In that case, consider whether you could be happy in a different market. While the hot markets are the ones making headlines right now, there are cooler climes out there too. Perhaps remote work means you could move further out of town. Or perhaps instead of buying in the sought-after school district, you settle in a cheaper town and put the extra cash toward private school.
While it may not always feel like it when you're in the thick of the hunt, the right situation, and the right home, have a way of eventually turning up.