Authored by Russ Weiss, CFP® & Heather Walton, Realtor® Owner/Partner with Class Harlan Real Estate
If you’re house hunting this spring, you’ll most likely be met with low inventory and high competition. It’s for this reason that buying a house in a sellers’ market can often feel like an uphill battle. To help you feel better prepared for the spring market, we’ve interviewed Heather Walton, a Realtor with Class-Harlan Real Estate in Doylestown, who offers some tips on making a strong offer, even in the middle of a bidding war.
How should buyers prepare once they’re ready to start looking for a home?
Heather: First, buyers should have buyer representation with an experienced real estate agent who is knowledgeable in the area. Interview a variety of Realtors to find one that is the best fit for you. Additionally, have a good idea of what you’re looking for and be on the same page as your spouse (or the person you’re purchasing the home with). You’ll want to share these wants/needs with your Realtor so they’re also on the same page.
The second step should be getting pre-approved for a mortgage, assuming you’re getting a mortgage. To help find a mortgage lender, research recommendations from your Realtor, financial advisor, family members, or colleagues. Shop around for a lending institution that has competitive programs and rates and a solid track record of getting buyers to the settlement table. Additionally, if you’re a first-time home buyer, veteran, or doctor, there may be special programs for you, so be sure to inquire about them with potential lenders.
How do buyers find the right Realtor for them?
Heather: Referrals from friends, family, co-workers, and professional references can be the key to finding a good Realtor. You can also research reviews on Google, Realtor.com, Zillow, or even Facebook groups to help narrow down your list.
I encourage home buyers to interview potential Realtors over the phone or in-person. Does the Realtor live in the community you’re looking to buy? Does the realtor work full-time? Is the Realtor knowledgeable about the schools, restaurants, shops, etc. in the area? Do you “click” with the agent – do you have a common interest? For many, a Realtor can be your first friend in the community and a great reference for the area, so make sure you take the time to vet a few options.
Should buyers adjust expectations in a sellers’ market?
Heather: In this busy sellers’ market, where there is extremely low inventory and there is a surplus of buyers looking for homes, you should be prepared to adjust your expectations. Prioritize the things that are most important and remember that real estate is about location, location, location. And location can mean many different things – for example, it could be a town, a county, a certain school district, somewhere close to work, walking distance to your favorite coffee shop, or even a house on a cul-de-sac. Start with the area you’d like to live in, then narrow down your wants and needs.
How should you navigate low inventory? Are there ways a buyer can help their Realtor?
Heather: For starters, try to be broad in your search. For example, three or more bedrooms (as opposed to exactly three), a certain school district, etc. Your Realtor can set up a prospect matching search on the MLS system and email you recommendations. Check your email every day and be prepared to, within hours, go and see a home. Unfortunately, in this market you may not have time to sleep on a decision. You and your agent may be submitting an offer on a property within hours of seeing it. Buyers should be prepared for a bit of a roller coaster with low inventory and know that, while it may feel like a lot of pressure to make a fast decision, your Realtor is there to assist you in reaching your end goal of owning a home.
Buyers can look on Zillow, Trulia, or Realtor.com to help their Realtor, but those sites don’t always have the most up-to-date information. If there’s time, do a drive-by of the property before requesting a showing to make sure you are comfortable with the location and surroundings.
What can make a competitive offer on a home?
Heather: Once you’ve found a house that you’d like to make an offer on, your agent will investigate what’s important to the seller. For example, settlement date, timing of when offers are being presented, inclusions or exclusions, etc. Once they have that information, they will sit down with you and guide you through the process of preparing an offer with terms that suit you and, hopefully, the seller!
Another thing a buyer’s agent can do is run “comps” in the neighborhood, which are any active, pending, and sold listings within, for example, the last six months. This helps you get a feel for the listing price and whether it’s reasonable for the type of home, that neighborhood, etc. In this marketplace and the early spring market we’re experiencing, homes priced right – based on condition and location – should sell in under approximately 15 days. If a home has been on the market for longer, that may be an indication that a home is priced too high. Your Realtor can help you make that call.
The Standard Pennsylvania Agreement of Sale, which is the document that an offer is written on, offers a variety of opportunities for buyers to express the details of their offer to purchase in the form of terms and conditions. The following terms may be negotiated in your offer:
- Price
- Earnest money deposit (and the timing of such)
- Seller assist
- Settlement date
- Electing or waiving a mortgage contingency
- Mortgage commitment date
- Electing or waiving inspections (and timing of such)
- Home sale contingencies
- Appraisal contingencies
- Escalation addendums
- Inclusions and exclusions (appliances, furnishings, etc.)
Buyers can make decisions on these categories based on what they want and also what they believe the seller wants. For example, if the listing agent makes a note that the seller wants to settle by May 1st, you may want to strongly consider accommodating that settlement date to make your offer more competitive.
Additionally, financing 80% or less saves the buyer from paying private mortgage insurance (PMI) and these buyer qualifications may be appealing to sellers, as long as it’s within your financial capacity to do so. Your mortgage lender or financial advisor can help advise you on what you can afford. And while there are cash buyers out there, there may be other contingencies to make your financed offer more appealing.
For instance, you can include strong earnest money deposits or a price escalation addendum to help strengthen your offer. An earnest money deposit is money you put down typically within 5 days of full execution of an Agreement of Sale. This goes towards your home purchase and is typically held in a non-interest bearing escrow account by the listing brokerage or buyer’s title company. There is a standard timeframe and amount in the Standard Pennsylvania Agreement of Sale; however, you can offer more than the standard or provide the deposit sooner than required to convey to the seller that you are a serious buyer. A price escalation addendum is an addendum in your offer showing the seller that you’re willing to go a certain dollar amount above the highest offer the seller receives, within a certain limit, of course.
Are buyer letters still a thing?
Heather: Buyer “love letters” are actually against fair housing regulations and Realtors are being advised not to use them. However, we do still see them occasionally. Buyers may insist that they be included alongside an offer; however, sellers may not want to see them to avoid making an emotional decision.
Should buyers consider forgoing a home inspection when buying a home?
Heather: I never recommend someone waive an inspection. However, I do inform buyers that they may be competing with people who are waiving inspections in this market. If you make an offer with an inspection, pick the inspections that are most important to you (for example, home, radon, wood infestation, septic, well/water, etc.) and complete them in a short time frame.
Additionally, consider adding a dollar deductible to avoid “nickel and diming” the seller. A deductible shows that a buyer is willing to cover $X of any material defects found in any of the inspection reports. After that amount, they may be able to negotiate further or terminate the Agreement.
The inspection also provides a valuable chance for the buyer (and the buyer’s agent) to spend more time in the home. Whereas you might have viewed the home for 20 minutes before making an offer, a home inspection time period offers you a chance to learn more about your home, the systems in your new home and really take a good look at it.
Remember, you are buying more than a home, you are buying a lifestyle within a community, potentially made up of school systems, shopping districts, transportation systems, roadways, park systems, etc. Remember to look at the big picture of the community you are looking at. Have fun and good luck!
