Buying in Today's Seller's Market
Buyers want to buy now to take advantage of historically low interest rates. Buyers also sense that the market is at the beginning of an appreciating cycle. They want to buy now, because they fear that prices will be be higher in the near future.
We have helped our buyers to successfully buy homes is this market. In this issue we outline the steps on how to buy in a seller's market.
Work with a Local, Successful Buyer Agent
The advice, local market knowledge, and negotiation skills of a buyer agent is essential to buying in a seller's market. Now is not the time to hire a discount, limited service buyer agent.
Be Financially Prepared
To be competitive in a multiple offer situation the buyer needs to prove that they have the ability to buy the home. In many multiple offer situations the buyer needs to make a 100% cash offer to be competitive. A high percentage of sales in Cambridge and Somerville are cash. According to an 2011 article in Boston.com 34% of sales statewide in 2011 were cash. This trend has continued into 2013.
If a buyer does not have cash, they need to provide a preapproval letter from a local lender with a good reputation. Listing agents know which lenders perform and which do not, and will reject an offer with a preapproval letter from a lender with a poor reputation. Your buyer agent will be able to provide advice about which lenders have a good reputation. The amount of the down payment is also significant. A down payment of 20% plus is much stronger than a 5% down payment.
The Winning Offer Price
In an appreciating market determining the winning offer price is essential to coming out ahead in a multiple offer situation. In the relatively stable market of the past few year it was much easier to determine the offer price. The buyer agent would simply research recent sales of comparable properties. In today's market recent sales are often much lower than today's value. Each multiple offer situation is different. The number of offers and the level of buyer motivation will be factors that push the value up. A good buyer agent understands the dynamics of the situation and can offer advice on the offer price.
In a seller's market buyers often need to waive contingencies to win in a multiple offer situation.
In a multiple offer situation waiving the financing contingency makes the offer stronger. The risk of the deal is shifted in favor of the seller. If the buyer is not able to obtain financing the seller retains the buyer's deposit (typically 5% - 10% of the purchase price). If the buyer does not have the liquid funds to close, waiving the financing contingency is extremely risky, since a mortgage can be denied for many reasons that are out of the buyer's control (such as the financial condition of a condo association).
Sale of the Buyer's Home
In a buyer's market an offer can be made contingent on the sale of the buyer's home. However, in a seller's market, it is almost impossible to get this contingency accepted (especially in a multiple offer situation).
In multiple offer situation some buyers are waiving the home inspection contingency. This is especially common in the sale of development and investment properties. Waiving the home inspection contingency is only appropriate for home buyers that can afford to repair serious safety and structural problems.