How To Buy a Home In a Seller’s Market

Buying a home can be a challenging journey.

In a seller’s market, home buyers face the most difficult real estate market. Homes sell fast, prices are high, and the number of homes for sale is dismal.

More dismal than the end of hockey season every year…

A seller’s market disfavors a home buyer. All of the cards are being held by the seller. The market is as competitive and ruthless as the Hunger Games, but at least you won’t perish in the process.

May the odds be ever in your favor

 

But buying a home in a seller’s market isn’t all doom and gloom. Sure, it can be challenging, but it’s also rewarding. For example, there is a real sense of accomplishment in owning your first home.

In this article, I will show you how to avoid and overcome all of the challenges a home buyer faces in a seller’s market so that you can buy your dream home even though prices are high and homes are selling fast.

Here’s the thing. These strategies I’m going to share weren’t developed in theory. Everything you will learn in this article are strategies I developed and tested in my own local real estate market — long before I ever shared them with the public.

I’ve spent months testing and refining these strategies with different clients so that I could truly optimize them for the market, and share them with every home buyer.

These strategies will work in any market, but they are critically important in a seller’s market because the competition is so high, prices are soaring, and homes are hard to find.

With that said, let’s get started.

Be The First One There

In the inspiring words of Ricky Bobby, “If you’re not first, you’re last.”

Have you ever waited in line for the newest Apple iPhone? What about the latest Star Wars movie? Even a Black Friday sale?

The name of the game is to get there first. If you want to be the first one to get the iPhone, see the movie, or score the deal, you need to beat everyone else.

We can use that same mindset when it comes to house hunting. There are no physical lines, but you can bet people are lining up to go see homes as soon as they hit the market.

If you want to avoid having a home sold from underneath your nose, then you need to know about it as soon as it comes to the market.

I have found that many homebuyers believe they are getting the most up-to-date and relevant information, but the data tells us a different story.

I mean, these house hunters are getting notifications to their phone or email as soon as the house is listed for sale on their preferred search site. As it turns out though, there is sometimes a gap. A delay when a home is really listed and when it hits a website.

Some home search sites, like Zillow, often have inaccurate listing information. For example, they show active listings that are already under contract or sold. Since Zillow pulls its inventory from many different data feeds, it causes the site to be slow to update.

Plus, it’s in Zillow’s advantage to keep old listings around. You have to understanding how the company makes money.

Zillow gets paid by selling advertising space to real estate agents. The more space available, the more leads they can generate for a real estate agent. And the more leads they can generate, the more money they can charge a real estate agent and the larger their revenue.

By keeping around old listings, they can generate more ad space, and ultimately, higher revenue.

Plugging In To The Local MLS

The best way to be the first to know about a home is by going to the source. Many of the home search sites, like Zillow, Trulia, and Redfin, work by aggregating data from hundreds of local databases.

For example, RedFin pulls their data from 140 different local databases. Every local area has their own database that they publish homes to. This is commonly called the multiple-listing service.

Rather than searching for homes on sites like Zillow or RedFin, which update every 10 minutes or more, you can tap directly into the exact same system every real estate agent uses so that you get the most up-to-date, relevant data by the second.

You can really be the first one to know about a home.

To tap into your local multiple-listing service or MLS, you need to get connected with a real estate agent. Most real estate agents will provide you with direct-access to the MLS through a customer centric portal.

Here’s what ours looks like in Lansing:

The only downfall? You need to plug into the MLS where you plan to buy a home. That means you need to connect with an agent in that area.

So, if you plan to buy in Lansing, connect with a Lansing real estate agent. If you plan to buy in Dallas-Fort Worth, then connect with a real estate agent in Dallas.

Often local real estate agents will have access to their own local MLS only.

That’s what makes sites like Zillow popular. You can search for all of the homes. If you plan to use a site like this, there are a few things you should keep in mind if you want the most up-to-date data.

Picking a Home Search Tool

If you’re not going to use the MLS and prefer to use a national house hunting search site, then there are a few things you should look for.

First, take some time to understand the search tool’s business model. Their business model will influence their overall strategy for their search tool.

With Zillow, they make money by selling space to real estate agents. Their business model goes against the needs of home buyers. It’s better for Zillow to have an inaccurate tool so they can drive more revenue into their business.

The ideal search tool business model will be similar to a real estate agency. The company only gets paid when you find your dream home. Local real estate agencies or franchise brokers, like Coldwell Banker, are perfect examples.

Let’s look at the Dolinski Group as an example. The only time we make money is when accomplish our mission of helping home buyers find their next home.

There is no advantage for us to have inaccurate listing information. In fact, it would hurt us, our brand reputation, and ultimately erode any trust you, as a house hunter, might have in our agency.

And this is the same for many local real estate website or broker sites. So, if you’re going to use a national search site, I recommend sticking to a site like Coldwell Banker or the Dolinski Group.

The second thing you want to look for in a search tool is how often the information is updated. Ideally, the tool you use would update at least every 15 minutes. Anything longer, and you could be really missing out.

I applaud RedFin because they try to update their information every 10 minutes.

Write The Best Offers

Trying to balance our lives and house hunting is a challenge. Add in, trying to be the first, and things can get pretty hectic.

While being the first one to know about a home is great. It’s also difficult for most house hunters to drop everything they’re doing to go look at a home. We have lives, work, family, and other commitments to worry about.

So when you can’t be the fastest, you have to be the best. You have to be able to write the best offers.

But what makes the best offer?

The Myth of Price

Many home buyers fall victim to what I’ve coined the price fallacy. It’s the mistaken belief that the price you offer is the only thing that matters when it comes to getting your offer accepted.

The reality is that price is only a function of what’s really important to a home seller. And that’s profit. It’s about how much money a seller will get to put in their pocket at the time of closing.

And price is just a function of that. Offering a high price helps but you have to focus on maximizing the seller’s profit if you want to be the best offer.

This means, you have to be careful when you’re asking for repairs to be made by the seller or asking for seller concessions (where you have the seller pay some of your closing costs).

For example, let’s say you offer $200,000 for a home with 3% seller’s concessions. Excluding other expenses for simplicity purposes, a seller’s net profit is going to be $194,000 or $200,000 minus the $6,000 the seller will have to pay at closing to cover your closing costs.

An example of a better offer would be a $196,000 offer price and no concessions. The net profit to the seller is $196,000. They would net $2,000 more.

It’s net profit, — not price — that’s the most important when writing an offer.

Limit Your Contingencies

Contingencies are sometimes called weasel out clauses. A contingency in a contract is a clause that requires certain events or conditions to be met before any deal can close.

If a buyer backs out under a contingency, they typically reserve the right to recover their earnest money deposit.

For example, if a buyer submits an offer that includes an inspection contingency, the home must pass a satisfactory inspection. And what satisfactory means is usually up to the home buyer.

If not, the buyer may rescind their offer and get their earnest money deposit back, as long as they complied with the terms of the contingency.

These contingency clauses favor a home buyer. They decrease the risk to a home buyer, while at the same time increasing the risk to a home seller.

For that reason, every contingency you include in your offer, makes it weaker.

You have to find the right balance between protecting yourself with contingencies and making sure your offer gets accepted so you don’t miss out on your dream home.

It’s a good idea to talk with your real estate agent about what contingencies to include in your offer.

Some contingencies are standard in every agreement. It’s dependent on your market conditions. For example, in Lansing, it’s common for every offer to include at least an inspection contingency.

In tighter and more competitive markets, like Seattle, you may have to waive your inspection contingency if you want to get the home.

Again, talk with your real estate agent to get a good idea of what contingencies you may be able to include in your offer and which ones it might be best to go without.

How To Build More Trust Into Your Offer

Without trust, no real estate deal would ever happen.

Your goal should always be to build as much trust into your offer as possible. And there are a few ways you can do that.

• Having the right real estate agent
• Having the right lender
• Your earnest money deposit

It’s true…

Your real estate agent can make a huge difference, but it’s not something many house hunters really think about.

Of course, we want to be able to trust them. But do other real estate agents trust them?

The real estate agent’s reputation with other real estate agents will either build more trust or create less trust. Both can affect if your offer is accepted or not.

I wish I had a ton of hard data for this point, but it’s something hard to measure. There is a lot of unreliability in measuring the data, even if we tried. For example, how many real estate agents would openly admit that it matters?

What I can tell you is my experience being on the other end — working for the seller. Every offer I get, I scrutinize. That’s my job and what I’m being hired for.

If I have two offers; one from a real estate agent I have never met and never worked with and another offer from an agent who I have successfully and smoothly completed more than ten deals with, who am I going to choose, assuming all other terms equal?

The real estate agent you use won’t be the primary factor in whether an offer is accepted or not. But it’s an important one, especially when the terms are near identical.

There is less risk in working with a real estate agent I know and have dealt with, especially if the deal went smooth.

I can let my seller know what to expect, what the potential pitfalls are, and how this real estate agent tends to negotiate. I can tell a seller that agents entire philosophy. There is safety in this.

Why The Right Lender Matters

Your lender can make a difference, too. For the same reason your agent matters, your lender matters.

There are certain lenders who tend to represent a higher risk. For example, most real estate agents representing a seller will be nervous about a buyer using a lender, bank, or mortgage company that they have never heard of.

The fear is that the bank will have issues giving the loan, causing the deal to fall apart.

It’s less risk if you’re using a lender that a real estate agent has experience with. Often this means local lenders where you plan to buy or large national brands.

Examples of national brands are PNC, Chase, Quicken Loans, etc. Your local area may have different lenders, but in Lansing, agents like to see pre-approval letters from companies like Union Home Mortgage, MSUFCU, LAFCU, and others.

“In tight housing markets where bidding wars are common, buyers who need financing can strengthen their offers by working with a locally based mortgage broker or loan officer,” is a statement echoed by many agents and the author of an article in the Wall Street Journal.

It represents less risk, but it’s also a symbol of speed. Big banks tend to move too slow. A local lender can be dynamic and move things much faster than a big bank.

Upping Your Earnest Money Deposit

Your earnest money deposit is a great way to build more trust into your offer. In fact, that’s why you might also hear the term a “good faith deposit”.

The right deposit can sweeten a deal because you are putting more skin in the game.

There are usually three things that can happen with your earnest money deposit. First, if you close on the home, the money is used to your down payment. Second, if you back out under a contingency clause, the money is typically given back to you.

However, if you decide to walk away from the deal not spelled out in the agreement, you will more than likely forfeit your deposit. It will go to the seller.

A higher deposit builds trust with a seller because they know there is less of a chance that you will just walk away from the deal.

Depending on where you are financially, a $500 earnest money deposit may be no big deal. You might decide to walk away from the deal 24 hours before closing and forfeit your deposit.

On the other hand, if it was $6,000, the story is going to be different.

As a general rule, the more you can put down, the better your offer will be perceived.

Go Around The Competition

The last strategy for buying a home in a seller’s market involves circumventing the competition.

By showing up where nobody else is, you increase the odds that when it comes time to write an offer, you will be the only one.

It’s been my experience that doing things differently than everyone else is the right thing to do. We can’t do what every other house hunter is doing and expect different results.

The fact is that most house hunters are looking for homes using the same methods, and writing the same type of offers. They are competing with a large number of buyers over an increasingly scarce resource — a home.

Instead, we need to take a different approach. We need to find homes and look for them where nobody else is showing up.

There are generally two different tactics I recommend for circumventing the competition.

1. Take the picturesque homes and shove ‘em
2. Tour for-sale-by-owners

Having talked to dozens of house hunters and observing their behavior, I’ve noticed a trend. They tend to skip and filter out listings that have few photos and terrible listing descriptions.

I get it. With thousands of listings to look through, we need an easy way to filter out some of the listings.

But that kind of filtering is based on an incorrect assumption. The belief is that a poor listing equals a poor quality home.

Yes, much of the time this is the case. But there are also plenty of cases where there is no correlation between the quality of the home and the listing profile on a site like Zillow.

The reality is that most real estate agent don’t know the first thing about properly marketing a home. They don’t understand how to position a home in the market, how to write listing descriptions, or how to take professional photos.

When we see a home with four photos taken from a real estate agent with an iPhone that lacks an understanding of aperture and focal points, we wonder what the agent is hiding. Rather than asking about it, we dismiss it. We skip ahead to the other homes.

There are far too many listings that are great homes, but most buyers dismiss because of the listing quality.

I encourage every house hunter to dig more into these. Most house hunters aren’t, so you’re going to face less competition if you happened to find a gem.

The For-Sale-By-Owner

A for-sale-by-owner, or FSBO (pronounced FIZ-BO) is a homeowner who has decided to list and sell their house by themselves, without a real estate agent.

I love these homes because there are real estate agent who will direct their buyers to other homes. They prefer not to deal with a FSBO. They’re often labeled as inexperienced, angry, and flexible.

Sure, it can be true sometimes. But a for sale by owner wants to sell their home. Otherwise, it wouldn’t be listed.

On top of agents directing buyer elsewhere, most house hunters have inexperience with a FSBO. They might even be a little afraid to buy a home from them.

When demand is lower, so is price. This means you could find a nice deal and be the only one to write an offer on a home.

The most challenging thing for a FSBO, according to the National Association of Realtors, is getting the right price.

Often FSBO’s will list their homes too high or too low. It’s the ones that are listing their home too low that we are most interested in.

Taking Everything A Step Further

We looked at the three strategies for buying a home in a seller’s market. You have to be the fastest, be the best, or find ways to circumvent the competition.

I didn’t blindly create these strategies. They are the work of months spent testing and developing. There are so many more strategies that I’m unable to cover in this simple blog so I wrote a book…

… where I dive even deeper into many of the strategies I shared here.

Grab a FREE copy of my book.

Inside this book:

• Revealed: Beat the TONS of other house hunters glued to Zillow by being the first one to know about a home for sale. You will discover how to tap directly into the system real estate agents use so that you can get the most up-to-date and relevant information before anyone else.
• Write the very best offers, even when you can’t be the highest priced offer. It starts by understanding a seller’s motivation and using a little-used strategy that makes price secondary.
• Avoid the bidding wars and multiple offers, that usually drives prices beyond what you want to pay, by using little-known strategies for circumventing the competition and being the only one to write an offer on a home.
• Use the postal service to find your dream home in your most desirable neighborhood, even the home isn’t listed for sale.
• Prepare for the next market crash when you’re buying your next home so that you don’t find yourself underwater on your mortgage like the thousands of homeowners did during the last recession.

This book is 100% FREE and I will ship a copy to your doorstep. If you’re serious about buying a home in a seller’s market, then this is a great step.

Grab a copy of the book here