How Home Buyers Win in a Competitive Real Estate Market
2018 home buyers should prepare for a very competitive real estate market. The key to winning is planning.
I originally wrote this article in 2013, and it was surprising how much of it was still relevant today. I’ve updated this article to better reflect the real estate market that I expect we’ll see in 2018.
It’s already a very competitive real estate market for home buyers. There are far more buyers than there are homes for sale.
Interest rates continue to rise to well above all time lows, but still much lower than most have seen in at least 20 years.
Having a solid home buying plan, having a professional home buying team, and prioritizing your expectations are all key elements to winning the bid for your dream home.
Home Buying Plan
There’s an old saying that says that “if you fail to plan, you plan to fail”. Normally, you’ll hear this line being used in the context of creating a business plan or some other strategic planning event or activity.
I can’t think of a more important reason for having an action plan than when shopping for a new home! Searching for homes online is great for seeing what homes are for sale in your community, but it is not a plan.
Prepare to Win
The very first step to winning in a competitive real estate market is to hire professionals that do this every day, and know how to put you in the best position to win.
How do you know if you’re hiring a professional? The first clue is that they start any conversation by asking you what’s most important to you.
Real estate agents and loan officers work for you, and have a fiduciary duty to use their expertise and experience to look out for your best interest in any real estate transaction.
Being approved for your home loan is the very first thing you should do before you even consider start looking for home. Once you have the money, you’re prepared to move quickly if there is a lot of competition where you want to live.
The next step is to go through the exercise of identifying exactly what it is you’re looking for. Going into a highly competitive situation just “seeing how it goes” is going end badly if your competitive is more prepared than you are.
Create a “Must-Have” List
The first step is writing down your “Must-Have” list. This list will include everything you can think of that could, or would, help sway your buying decision in one direction or the other.
To begin with, this list should be long and as detailed as possible. Write down everything and anything you would want in a home.
Your list can include anything from how far of a commute you will tolerate, to granite counter tops. Don’t be afraid to invest at least an hour into this process.
Once you have your initial list, you’re going to further break it down into 3 categories
- Must Have – non negotiable items
Example: 3 bathrooms. If there is not 3 bathrooms, eliminate the home from consideration. Other examples of non-negotiable must haves might be, maximum commute and school district.
- Need – almost a must have, but could compromise if absolutely necessary.
Example: Large yard for dog. Maybe the yard isn’t as large as you would have liked, but there is a large pet friendly part within walking distance of the home.
- Want – Could easily make up for compromises elsewhere
Example: Modern kitchen. Maybe the kitchen looks like it’s straight out of the 70’s, but it’s big, roomy and shows lots of potential.
Now that you’ve identified the must haves, needs and wants of your new home, you have a road map for your agent to follow.
Having the patience to focus your search on homes that have passed your initial test, you can now take a more aggressive approach to getting your offer accepted.
By narrowing your home search only to the homes that you’re most interested, you can spend more time doing research, and less stress as you know that you did your homework and you made your highest and best offer.
Make Competitive Offers
Expect a lot of competition in most price ranges when trying to buy a home in today’s market. First time home buyers will see the most competition.
The most aggressive approach you can make is to be competitive, and be prepared to offer more when the counter offer comes back.
In some multiple offer situations, you will receive a blanket counter offer for highest and best offer. Here are a few tips that will help you keep your edge in round 2.
- Shop for homes within a price range below the maximum amount you qualify for.
To be competitive you’re going to need some wiggle room to increase your offer. Too many times we see folks get their hopes up when their agent submits and offer for more than they qualify for.
- Full lender approval.
There is a big difference between being pre-approved, and being pre-qualified. With a full loan approval, you have a strong shot at being a back up offer and taking a chance that you’re next in line.
- Understand your contingencies
An aggressive offer strategy may include a conversation about waiving or modifying contingencies. With a strong loan approval and great communication between your lender and your agent, this strategy might be an option for you.
A typical compromise may be the the seller wants the financing contingency removed in 17 days instead of the standard 20 days.
Your Competitive Edge
Now that you’re armed with a home buying plan, you will find it much easier to hire the right real estate agent and lender.
Sales people will focus on their accomplishments, professionals focus on identifying, understanding, and meeting your needs.
With a communicating and confident buying team, you can be more aggressive with your initial offer, your highest and best offer, and compromising on some of your contingencies.
Your lender and your agent will be able to support your buying plan by being available when you have question, providing fast communication, and customized pre-approval letters that support the most aggressive offer you can make.
With these tricks under your belt you are prepared to go into the home buying process armed with every tool available to you.
Having a plan will help you make more informed decisions. This will make your offer more competitive and improve the chances getting it accepted.
Share Your Experience?
Do you have any experiences, expectations or stories of your own to share? Competitive offers accepted is a great story that can help many others in a similar situation.