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How to Buy a House in a Hot Market
While some say there’s never a wrong time to invest in a home, it’s important to be aware that home buying strategies and tactics can change depending on the market. Buying a home in a hot seller's market can be especially tricky — but with a little patience, preparation and flexibility, you’ll be turning the key to the home of your dreams in no time.
We’ve broken down what a seller's market is, how to compete in it and other tips for buying a home so you can head into your search with confidence — no matter what kind of market you’re in.
What Is a Seller’s Market?
In a seller’s market, home inventory is low and demand is high, which means that some homes might be on the market for just a few hours before receiving multiple competitive bids. As the name implies, this market favors sellers, as they can quickly sell their home at — or even above — asking price. In a seller’s market, it can be more difficult for buyers to stand out since sellers are flooded with offers.
Tips for Buying a Home in a Hot Market
Finding a home in a seller’s market requires organization and proactiveness before you even start looking at homes. Whether you’re a first-time home buyer or re-entering the market, these tips and advice will help you start your home buying journey with confidence.
Decide your “must-haves”
Start by making a list of wants vs. needs. A want is something you’d like to have but isn’t essential right now, like a spare bedroom or dual sinks. A need is a non-negotiable, immediate requirement that could make or break the sale, like a second bathroom or off-street parking. Take the time to make a list of what’s most important when house hunting and share it with your real estate agent so they can get you as close to your dream home as possible.
Use our home-buying worksheet to stay organized and pinpoint your exact wants and needs. In the meantime, here are some things to think about when creating your list:
- Is the home located near things that interest you? School district, parks, restaurants, shopping centers, etc.
- Is it located on a busy street or in a quieter neighborhood?
- How many bedrooms and bathrooms do you need?
- Is garage and storage space important?
- Do you plan on having a home office?
- Do you want a turn-key home? (Remember: You can always add new paint, carpet or floors — don’t be thrown off by vanity issues that can easily be fixed later.)
Hire an experienced real estate agent
Having a good real estate agent is particularly important in a hot market. They should understand what you’re looking for and be able to alert you to listings as soon as they’re active, if not before. A good agent will also help your offer stand out to boost your chances of getting a home you love.
To find a great real estate agent, ask for recommendations from people you trust who recently went through the process in the same area you’re looking. If you don’t have a good recommendation in your network, you can always take these steps to finding the right realtor for you!
Get your finances in order
Before you start shopping for a new home, make sure your financial house is in order. Start with these tips for how to save up for a home.
Here are a few things to consider:
Save 20% of the purchase price. When saving for a down payment, a good rule of thumb is to save 20% if possible. This way you can avoid paying for private mortgage insurance (PMI). If 20% isn’t feasible — that’s okay! Your dream of home ownership is still possible. There are plenty of ways to buy a home without a large down payment.
Sock away money for future expenses. Don’t forget to budget for immediate repairs, such as a new furnace and ongoing maintenance in your new home. If you’re upgrading to a bigger place, you’ll also need to budget for higher monthly expenses.
Consider a local lender. You might be tempted to go with an online lender, but working with a local partner can help you close the deal — especially if they’ve previously worked with your real estate agent.
Choose a comfortable monthly mortgage. Just because you’re pre-approved for a certain amount doesn’t mean you need to actually spend that much on a home. Consider your overall financial goals and settle on a comfortable monthly payment before you take on more than you can handle.
Work on your credit score
Lenders often use credit scores and credit history to help make lending decisions and to determine loan terms, including interest rate, which can affect your monthly payment for years to come. Why? Your credit score represents your financial responsibility and the likelihood you’ll pay your bills on time.
Regularly check your credit scores and reports so you can understand your current credit position, ensure the information is accurate and complete, and correct any mistakes before you approach a lender. Learn more about credit scores and buying a home here.
Get preapproved for a mortgage
In a hot market, being prequalified isn’t enough. But getting preapproved for a mortgage can give you a leg up. Preapproval is a more thorough financial review that gives sellers confidence that your financing won’t be an issue if they accept your offer. Stay ahead of the game by learning the home loan basics before you meet with a lender so you’re ready to get a mortgage preapproval.
Holding out for the perfect home might not be an option in a hot market. Flexible expectations about where you can compromise will give you more home options, especially if there aren't many properties available that fit your criteria. Make sure to revisit your wants and needs list and start to pick and choose where to adapt to the market.
Be patient but move quickly
Watch for new listings. Your realtor isn’t the only one who can see the latest listings. You can also look at houses for sale online, through nationwide sites or local real estate listings.
Keep in touch with your real estate agent. Make sure you’re consistently in contact with your real estate agent so you can quickly move on any properties of interest to you.
Spread the word. Tell your family, friends and work colleagues that you’re looking for a new home! In some cases, you might be able to buy a home through a word-of-mouth sale rather than having to compete with other buyers.
Be ready to act. Clear your calendar when it’s time to view a home for sale and be ready to put in an offer immediately if you’re interested — chances are, you won’t be the only one who wants that house!
How to Make Your Offer Stand Out in a Seller’s Market
You’ve found the perfect home — now you just need to close the deal! Here are some tips to help you submit a strong offer that has the best chance of getting accepted.
Submit your best offer up front
Submitting a full-price offer — or even over the asking price in some cases — will definitely get a seller’s attention. But solid offers with few contingencies can also get your offer noticed. Whatever your situation, starting with a strong offer is your best bet to score the win.
Offer with high cash earnest money
Earnest money, or “good faith” money, can give you extra leverage in winning a home in a hot real estate market. This is a deposit that’s submitted with the initial offer and is applied to the final sale price. Earnest money for a house or real estate purchase plays a special role in your offer, so it’s important to understand the rules that govern these types of financial transactions.
Consider contingencies carefully
It’s always important to have a home inspection before purchasing a home. However, you can stipulate that an inspection is only informational. This means that if the inspector finds minor issues during the inspection, you'll purchase the home without asking the seller to complete any repairs. Other contingencies can be waived to make a stronger offer, including financing, appraisal or a review of HOA documents.
Write a personal letter to the seller
While standing out in the market with financial incentives can be very effective, there are other ways outside of money that can help you seal the deal! For example, a heartfelt letter can mean a lot to someone who is parting ways with a home they love. Composing a personal letter describing who you are, why you love the house, how you’ll take care of it and how much it’d mean to you can make a big difference to a seller when they have multiple bids.
Prepare to Buy a Home in a Hot Market
Buying a home in a hot market can be challenging, but being prepared can improve your chances of landing your dream home! Part of being prepared is reviewing our home buying resources to help you navigate the process with ease. Then get a quote on home insurance from your American Family insurance agent. Happy house hunting!
Related Topics: Owning A Home , At Home