When the housing supply is low, the competition among buyers increases, causing home prices to rise. In Austin, TX, for example, where demand among the growing population far outpaces supply, average home prices rose 30.5% between May 2020 and May 2021. Homes in this kind of market tend to sell quickly, with some houses selling to private buyers even before they are listed.
In a fiercely competitive market, often called a seller’s market, buyers often find themselves competing against all cash offers or getting priced out by bidding wars. This demoralizing cycle of making their best offer and still losing out on homes leaves many buyers feeling demoralized, wondering whether they’ll ever be able to afford a home. Buyers in a seller’s market can be successful, but they’ll need to be more patient and willing to compromise.
- When buying a home in a seller’s market, it is important to be flexible. Understanding what are you willing to give up while also ensuring that you are buying a home that meets all of your needs will help put you in a better position to close on the home of your dreams.
- Be proactive: reach out to agents in areas you’re interested in, sign up for real estate alerts, continuously browse listing sites and check social media platforms, and make sure to get pre-approved so that sellers know you’re serious.
- Have a trusted agent or team who you feel confident can help you find new listings, provide advice on bids, and help you navigate non-traditional cost-saving options, such as REX’s AllHomes Cash Back program.
Here’s how to navigate a hot housing market
Here are five tactics to help you navigate a seller’s market, even if you’ve lost out on several bidding wars or are feeling priced out of your housing market.
1. Know your must-haves and where you can compromise
Take time now to determine:
- What you want. Even in a hot housing market, take a moment to think about your ideal home, location, and amenities. Buying a home allows you to think about what you would like. That said, if you’re feeling priced out of the housing market, you’ll likely have to compromise on your wants, especially if you’ve lost out on homes during a bidding war.
- What you need. Now that you know your ideal home and location, go through your list and separate your must-haves from your wants. The reality of a seller’s market is that buyers often have to compromise. Knowing what you’re willing to give up will allow you to act quickly and submit focused bids that are attractive to the seller. This step also ensures that you don’t over-compromise and give up a must-have for you.
- What you can afford. When you’re feeling priced out of a housing market, it can be tempting to keep bidding higher, even if it’s not in your best interest financially. Determine what you can afford now so you don’t end up with a house that causes you financial stress or regrets. When assessing what you can afford, don’t forget to consider other homeowner expenses such as sewer, trash, utilities, and potential homeowner association fees.
- What you can compromise on. When you’re priced out of a housing market and waiting to buy a home isn’t an option, knowing what you are willing to give up can help. Some things to consider may include giving up amenities of the home or yard, the ability to live in a different neighborhood, or waiving certain contingencies. Decide what home repairs or upgrades you’re willing to do yourself because asking a seller to make minor or cosmetic fixes in a seller’s market likely will cause you to lose the bid. However, don’t compromise more than you feel comfortable. While some buyers will waive the right to a home inspection, it’s okay to ask for that. You don’t want to be surprised if your new home needs a new roof or has foundation issues.
2. Do your own research so you can act quickly
Researching real estate listings online and driving around potential neighborhoods (if you’re looking locally for a house) can give you an idea of what is available and realistic for your market. Some listings also include virtual tours, which can save you time.
When researching, also look at recently sold homes online to understand what houses are selling for as compared to the listings. This comparison can give you a better sense of the type of bids you may need to make.
While you’ll want to monitor the most common real estate listing sites, don’t forget to look at other options. If you know of a neighborhood you’re interested in, talk with a real estate agent familiar with that area. They may learn about a potential home even before it is listed. You can also browse sites like REX’s home listings to see what is available in your area. Don’t forget to set up real estate alerts when available so you learn when houses go — or come back on — on the market. In a hot market, sometimes seller’s accept the highest offer only to have the buyer’s financing fall through later on, so keep your eyes peeled for homes that fall out of contract get relisted.
You also can check social media for leads. Some neighborhoods have real estate sites or community posts that discuss homes about to go on the market. This strategy can give you a head start.
3. Get prepared by getting pre-approved or having a cash-backed offer
You’ll need to have your financing in order before you start bidding on homes. This step shows sellers that you’re serious about moving forward and can afford to do so. You’re also signaling to sellers that you can close on your offer.
If you’re planning to get a loan, you’ll want to interview multiple lenders so you can compare mortgage interest rates and then get pre-approved. Being pre-approved, as opposed to pre-qualified, shows sellers you can move forward with buying.
If possible, presenting a cash-backed offer can also be an advantage. To help buyers with good credit compete against all-cash investors, certain lenders will actually buy a home on your behalf and then transfer the contract back to you at closing, with your pre-approved mortgage attached. The seller gets a cash sale, while you get a traditional mortgage that you can pay down over time. Sellers like all cash offers since they avoid potential financing issues, such as when a buyer’s loan falls through at the last minute. Cash-only offers also tend to close faster and with fewer contingencies that put the deal at risk.
Be sure to talk to a loan advisor you trust to ensure that you are aware of all your options when it comes to financing your home.
4. Consider non-traditional options to save you money on rates and closing costs
By saving money on rates and closing costs, you can potentially use that money saved to increase your budget or use it towards home repairs. This strategy may free you up to place an offer on homes you might have to pass on otherwise.
Look for lenders or programs that give you money back or help you cut costs. For example, REX’s AllHomes Cash Back program gives buyers 1% of the purchase price back at closing when they find and buy a home not listed with REX. They also waive the buyer’s agent commission on homes purchased directly through REX (a value of 2.5-3% of the home’s purchase price). Jim Bray, a REX agent in the Bakersfield, California area, noted that not having to come up with as much out-of-pocket money for closing costs can add up to significant savings, especially for first-time buyers.
“One client that just closed did the AllHomes Cash Back and got $3,000 back against closing costs. She also used REX Home Loans and got a $2,000 credit.”REX Agent, Jim Bray, Bakersfield, CA
5. Consult with a trusted agent
Having the right agent and brokerage in your corner can give you the additional edge you need to land the home you want. A good team will be able to help you find new listings fast, understand what types of bids are more likely to be successful at the time you’re looking, and be open to exploring options you find or listings that may be stale.
When looking for an agent to work with, consider their:
- Experience and knowledge of the area you want to buy a home
- References from recent clients that they’ve helped
- Online reviews if applicable
- Understanding of what it takes to help you through the process of buying a home and their ability to explain it to you
Buying in a hot market can take time, so you’ll want to make sure you’ll work well with your agent. Don’t hesitate to interview several agents before making your decision. You’ll be able to assess whether they are knowledgeable in the type of homes or area you’re looking for and if you’re compatible.
Even in a red-hot seller’s market, buyers still have options
Being a buyer in a seller’s market can be frustrating, especially if you can’t wait for the market to change. However, being patient, prepared, and willing to conduct your own research can help you succeed.
Having a trusted agent or team can help you navigate the process of buying a home in a hot market. REX Homes understands the importance of working with you through each step of your home buying journey, so you end up with a home you love.
At REX, you get a team of experts to help you develop a home buying game plan to fit your situation. REX’s all-inclusive approach combines the expertise of trusted local agents with in-house support from mortgage and home services teams. As a home buyer, you have all the help you need to move quickly properties you want to tour, submit offers on the ones you love, and get the most competitive options for mortgage loans, insurance, home inspections, moving, and even renovations. Because REX agents don’t rely on commission — and instead measure their performance based on customer satisfaction — the focus stays on you, not chasing the next client.
Whether you’ve just begun searching or are feel priced out of the market after losing out on multiple offers, talk with the REX team about what you’re looking for in a home.