You may have heard that the housing market is very much a sellers’ market right now. There is an insane competition for homes in many cities, and a lot of prospective buyers are forced to take certain steps that they may not have had to do in the past.
The Current Housing Market
Because of the pandemic in the past year, there has been an increase in remote work and relocation out of large cities like New York and San Francisco, as part of an effort to escape the negative externalities of big city life as well as skyrocket rent prices.
There’s been a push for new home construction and it’s been at the highest level since 2006. US builders are on pace to start construction on 1.1 million single-family homes this year. Right now, there are simply not enough houses on the market to meet demand.
Combined with the inflationary prices of many common items like lumber, cost of labor, and raw materials, the cost of a home is higher than ever. The median price for a single-family home rose about 18% to about $335,000.
There’s a lack of supply and a lack of houses able to purchase, particularly in the mid-tier price range of between $150,000 to $300,000 in markets like the Midwest. Those are the types of properties being fought over.
What Buyers Are Doing
Waiving Their Rights
The article from the New York Times states that “competition in many cities is leading potential buyers to take steps they may not have considered even a few months ago, including offering tens of thousands of dollars above the asking price; agreeing to let the seller live, rent-free, in the house for several months before closing, and waiving certain contingencies like the right to inspect the house before buying.”
Imagine paying for your house and then letting the seller live rent-free?! Waiving appraisals and inspections is insane. Do not do this! This is most likely the biggest purchase of your life, and you’re waiving the right to know what you’re buying?
If you were spending $250,000 on a used Lamborghini, would you not test drive it? Check to make sure it’s running correctly? Make sure you’re getting everything you’re paying for? Why would this not change with a house?
This is an official warning: if the seller is asking you to waive your right to inspect, this is the house for you. That’s the biggest red flag.
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“Love Letters” to Sellers
Another thing that buyers are doing is that they’re sending a kind of “love letter” to the seller to make the buyer seem more attractive to the seller. When there are a bunch of bids on the house, and there’s a lot of interest, buyers are thinking that a letter to the seller will make them stand out and get their bid accepted.
However, at the end of the day, the largest motivating factor for sellers is the price. They would rather have $8,000 more for the home, than a letter from you telling them how much you love the yard, or how close it is to your place of worship, etc.
You must be thinking: “well it can’t hurt, right?” Well, it actually can provide an insight for the seller to make a judgment on you. For example, consider this kind of letter:
Thank you so much for showing us the home this past week. We love the nice kitchen, the large yard, and the close proximity to our temple. We’re excited to celebrate birthdays, Hannukah, and anniversaries in this home, and really grow our family here.”
This seems absolutely harmless, but the seller could make judgments about you and you and your family, based on the information you gave them like ‘Hannukah’ and ‘temple.’ It’s absolutely unfair and wrong, but there are ways that these letters could give sellers a bias against you.
You never know what people’s biases are, and it’s against Fair Housing, and it’s ethically wrong, but sellers can do it in their mind, and they can decide who they will/won’t sell to.
So if you want to eliminate as many barriers as possible for you to get the home, follow these rules:
- Don’t write any letters
- Don’t give up your inspections
- Don’t overpay
If you want to get into real estate with no money down, check out our series on How to Get Into Real Estate with No Money Down:
- How to Get Into Real Estate With No Money Down-Seller Financing
- How to Get Into Real Estate With No Money Down- Hard Money and Gift Money
- How to Buy Real Estate With Credit Cards
Buyer Incentives to Sellers (Outside of Purchase Price)
In certain states, there are buyers who are willing to offer incentives (sometimes called “option money” to sellers that aren’t reflected in the purchase price. The idea is that this option money works as a bonus.
You’re basically saying something like “Seller, I will give you $___ outside of closing if you accept me as a buyer.” This could be an effective strategy, but you have to ensure that this is legal in your state.
If you’re going to do this tactic, make sure that it’s within your legal rights to do so. If you’re allowed to give someone extra money outside of closing for various financing reasons, this could be a strong tactic, especially because there are limits on what you can give the seller in terms of credit.
Don’t Wait Too Long
In a housing market that is this hot, you cannot waste any time thinking about your offer for too long. It’s scary thinking about putting in an offer too soon, but the reality is that when the housing market is in this current state, moving fast is key. You need to beat out the other buyers that are looking for a home and may have greater budgets than you do.
Anything you can do to put your foot in the seller’s door is important, and time can be of the essence. Put an offer on them immediately, don’t wait a week or two to think about it, because you will lose the house.
Houses are getting bought up even before it hits the MLS. If you see a house on the MLS, know that there are already other people competing on the house, so you don’t have the time to sit back and think.
- MLS (Multiple Listing Services): “MLS’ are private databases that are created, maintained, and paid for by real estate professionals to help their clients buy and sell the property.” For more information, the National Association of Realtors released this article on MLS.
To Wrap Things Up
In a housing market like now, it’s important to remember the following things as a buyer:
- Don’t overpay for the house. You’ll be losing money in the long run, and potentially ruining your credit and financial stability.
- Do not give up your right to an inspection.
- If you’re going to involve a strategy like writing love letters, just know the risk of potentially giving the seller discrimination ammunition
- Look for other strategies that are working (and legal) in your area.
- By wasting a lot of time on an offer, you will lose the bid.
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