It’s no secret the housing market is hot at the moment, so much so that just about everyone is wondering when the next housing crash will take place.
The few homes that are out there are flying off the shelves, and bidding wars are becoming more and more common, if not a foregone conclusion.
Instead of home sellers delivering price reductions to prospective buyers, as they did just a couple years ago, properties are going way above asking.
While some are quick to scream “Another housing crisis!,” for me it just reinforces the housing market dynamic we’ve seen over the past year and change.
One driven by limited housing supply, low mortgage rates, and rising salaries for prospective buyers, all of which increase both home prices and purchasing power.
At the moment, it’s clear the home sellers have all the leverage, but that doesn’t mean you still can’t negotiate or get a better deal.
Sure, the past few years have been crazy – but you shouldn’t have to write a letter to the seller begging them to accept your offer.
And while it’s still easy to get caught up in all the excitement, don’t forget that you have power too as the home buyer, no matter the market conditions.
Simply put, don’t be a desperate home buyer. Or a desperate buyer of anything. If you are, you’ll likely get ripped off, or at the least pay more than you need to.
Here are some things to consider to avoid being that desperate buyer, which might lead to a lower price and better choice of property.
Buy a Home at the Right Time for You
First off, make sure it makes sense to buy a home at any given time, not just for financial reasons.
I’m not talking about timing the market – I’m talking about not rushing into homeownership unless it makes sense for YOU.
This is part personal based on your life goals, needs, etc., and partially to do with the housing market in the area where you want to live.
While we can’t all control the timing, there’s no need to rush in when we’re talking about a costly home purchase.
It’s a big deal, and as such a lot of time, thought, and preparation should go into it. Forget about what those iBuyers are attempting to do.
Once you actually know homeownership is for you, there are some seasonal patterns to consider that could provide an edge.
One tip here is that spring tends to be the worst time to buy a home because it’s a time when the most prospective buyers are active.
While there might be more listings to offset the surge in buyers, it can be in your best interest to shop for a home during fall or winter, when competition is generally lower.
You could have an easier time negotiating with the seller, snagging a price reduction, getting repair requests approved, and so on.
The mortgage process might also be smoother if your lender, loan officer, underwriter, appraiser, and escrow officer aren’t totally swamped.
In summary, less stress and potentially a lower sales price if you can exercise some patience.
Get Pre-Approved for a Mortgage Before You Shop
This is a no-brainer, and one I’ve mentioned on many occasions. Without a pre-approval letter in hand, sellers won’t take you seriously, especially in today’s hot market.
The real estate agents won’t either, knowing a mortgage isn’t a sure thing. So take the time to get pre-approved first.
In fact, look for a mortgage before you search for a house!
This will also help you narrow down your property search to ensure you only consider homes in your price range.
It’ll also let you determine if you can bid a little extra if need be, knowing you’re approved for larger loan amounts.
Tip: With bidding wars common at the moment, lower your maximum purchase price in the Redfin/Zillow apps to allow for above-asking offers.
Set Aside Cash for Down Payment and Closing Costs
One key component of a mortgage approval is cash on hand. Without it, you won’t have funds to cover the down payment and/or the closing costs.
Sure, there are lots of loan programs that require very little, such as Fannie Mae HomeReady or the FHA’s flagship 3.5% down mortgage, and even zero options from the VA or USDA.
But it helps to have money in the bank so you can present a stronger offer to the seller, and give yourself the ability to negotiate.
If I’m a seller in a hot market, I’m going to want the buyer who can put 20% down on the purchase versus the buyer scraping together just enough funds to close.
That extra cash could also come in handy if the appraisal comes in low, which is probably happening more often as the market eases and overinflated prices drift back down to earth.
[What’s the Best Mortgage for First Time Buyers?]
Always, Always Negotiate, Even in a Seller’s Market
Speaking of negotiating, do it. Always. It doesn’t matter if it’s rent, a mortgage, or you’re getting a cavity filled. Always ask for a lower price.
Most times, folks will oblige just due to human nature, even if it’s a nominal discount.
It irks me that most people are happy just to accept whatever price is thrown at them. Or whatever price the listing agent says the seller is willing to accept.
You can almost always go lower. In most cases, the seller is going to be more desperate than you, even if they’ve supposedly got multiple offers.
They likely need to sell their home because they’ve made the commitment to do so, and you don’t need to buy their particular home.
The same is true for a brand new property, even if you’re told by the home builder that prices are firm.
Of course, it depends how much demand there is for their properties; if there’s a lot, they might not budge on their price. But it’s always worth a try regardless.
There will always be other homes on the market, so keep that in mind.
Don’t Show Your Hand to Anyone
A key tactic in the negotiating department is never showing your hand. And I mean never, ever, showing it, to anyone.
This includes your own real estate agent. If they know you’re in love with a particular house, they might not fight as hard to ask for credits or a lower price.
Sure, they should and might, but if you make it appear that you’re more than happy to walk, they’ll be on the phone with the listing agent warning them that the buyer is ready to walk.
That could be enough to get the sellers to act, and give into the buyer’s demands.
Basically, whatever you express to your own agent will likely be passed along to the listing agent.
Another approach is to peruse listings without a buyer’s agent, then simply contact the listing agent directly if you come across something you like.
This could provide an edge above other bidders if you’re represented by the listing agent’s brokerage.
Just be sure they have your best interests in mind and you don’t overpay for the house.
Be Willing to Move On No Matter What
Lastly, it is perfectly okay to walk away, whether it’s at the car dealership or the negotiating table with your real estate agent.
There are plenty of houses in the sea, and while it’s easy to get hung up on one particular property, it’s amazing how we often fall in love again and again.
More often than not, if a first property falls through or you don’t win the bid, you may look back grateful that it didn’t work out.
Typically, I hear something along the lines of “I’m glad we found this house.” Not “I wish we hadn’t missed out on that other home.”
Try to remember that when shopping homes and making offers.
It’s decidedly a seller’s market at the moment, which isn’t great for those entering the market, but that doesn’t mean you can’t employ the tactics above.
While home prices might appear steep, they aren’t so bad when you consider real housing prices adjusted for inflation.
And with mortgage rates so cheap, it could be a great time to lock in an absurdly low rate for the next 30 years.
Read more: When should you start looking for a house?