Tricks for Buying a Home in a Seller's Market
Posted by Justin Havre on Thursday, November 22nd, 2018 at 9:20am.
There's no doubt that buying in a competitive market is intimidating, and it's not unusual for sky-high prices to make a buyer think twice about their plans. But there are still a lot of advantages to buying instead of renting, even in high-demand areas in major cities. In fact, it may end up being the smartest investment you ever make. Follow these tip to get the best possible deal (and to crush the competition.)
Timing Is Everything
Those without a lot of patience will love buying in a popular neighborhood because there's virtually no wait time. Buyers have to be ready to see a property as soon as it's up for sale, preferably within 24 hours of the first announcement. That little extra edge can sometimes make an offer seem more attractive because of the proven interest in the property. To do this properly, buyers should research the neighborhood long before calling a buyer's agent.
Narrow down the desired zip codes or streets, and then find out everything there is to know about them. It's not unusual to have offers come in on the same day the home is listed, so all the preliminary work has to be done before the negotiations start. It's easy for a buyer to overpay for a bad house on a good block if they're not aware of zoning laws or future plans for the neighborhood.
Lead with the Best Offer
This is probably counterintuitive to everything else prospective buyers have heard about the housing market, but a competitive market (like North Calgary) plays by different rules. Starting with the best offer may be one of the best ways to get a good deal. Sellers aren't basing their decisions solely on the dollar figure. They need to first make sure the buyer is in a financial position to buy the home, so preapproval for a loan is non-negotiable.
For best results, cash is always going to be the most attractive way to pay for the seller. A VA or FHA loan may only make them dismiss the offer entirely. The other thing to pay attention to when it comes to the offer is what the seller wants. Is it possible to let them stay an extra month so they can get their affairs in order? Can you take care of some of the repairs the seller was originally planning to do? Sometimes flexibility can trump buying power, so keep these things in mind before proposing the terms.
Utilizing an Escalation Clause When Buying in a Competitive Market
An escalation clause is a clause written into the contract that states that the buyer will offer a certain amount more than any other offer made on a house. For example, buyer #1 makes an initial offer of $200,000 for a house, and includes an escalation clause that will raise the offer by $5,000 over any other offer made. At the same time, buyer #2 makes an offer of $220,000. When this happens, buyer #1's offer increases to $225,000 automatically.
Escalation clauses usually include a cap that prevents the offer from going higher than the buyer is willing to pay for a property. Escalation clauses can be controversial, and may become complicated when multiple buyers make offers that include escalation clauses. For this reason, an escalation clause should only be included when the buyer fully understands the consequences and when the market is especially competitive.
Find the Right Agent
Having an agent who understands the market won't make the process entirely painless, but it can be a tremendous help. The process of buying and selling a home can be wildly different from neighborhood to neighborhood and even from house to house. No one can possibly understand the nuances until they've worked with it day in and day out. A person who's just looking to cash in on the upswing of the market will have very different needs than a seller who's been given two weeks notice that their position has been transferred to Asia.
Buyers will still need to do their own research so they know what's available. The agent is available to open doors that normal buyers wouldn't even have known about, but an agent won't be able to make the decisions for the buyers. The right agent will fill in any major gaps of a buyer's knowledge while giving advice across a number of different buying scenarios.