Three Quick Tips for Buyers in a Seller’s Market
My eyebrows are a little higher after reading two articles.
Mortgage rates are falling.
The first is from the venerable Wall Street Journal, and the title says it all. “Mortgage-Rate Drop Helps Buyers.” The article isn’t online at the time I wrote this blog, so pick up a copy of the Monday 04/24/17 edition and turn to page A3. According to Freddic Mac, the average interest rate for a 30-year fixed rate mortgage just fell below 4%. This is a significant drop, as the average has been up to 4.3% since November 2016. (To compare, the average interest rate was around 3.5% for most of 2016.)
What does this mean for buyers? It means that your monthly mortgage payment just fell for the same house at the same price point. This drop saves buyers with a $200,000 mortgage around $500 in interest annually. While this news may cheer buyers, they also need to know that lower interest rates mean more competition from other buyers.
There is a shortage of homes for sale.
That brings us to the second article, appropriately titled “In a Hot Market, Not Enough Homes are for Sale.” Again, the title says it all. We saw shrinking inventory in 2016. New listings are down another 9.1% compared to 2016.
As a practitioner, this market is driving both me and my buyers absolutely nuts. I have been pulling every trick out of my hat to land my buyers the right home. Worse, I’ve been forced to caution my buyers against being too picky or too demanding; sellers are happy to cut them loose and find somebody more cooperative, often with more money to offer too. I absolutely hate doing this, but sometimes it’s the only way to win a great house.
What does this mean?
Falling interest rates mean more competition from other buyers. There will also be more competition for fewer homes since inventory is dropping.
Buyers, you are not in the driver’s seat any more. This is a seller’s market! While you may remember 2008-2012, 2017 is a new era. Successful shopping means adapting to new rules and setting different expectations.
Here are three quick tips to win in competitive markets.
- Do you really need every possible test and contingency? Some contingencies should never be waived. Others may be less important. It’s time for a gut-check. Do you really need a radon test, or are you willing to address that yourself after the sale? (Remember, radon mitigation systems generally cost less than $1,000.) Do you need a separate mold test, or can you build the same net effect into a general inspection contingency? Listing agents help sellers pick offers with less potential trouble for the seller. Fewer contingencies mean less trouble for the seller. Put your offer on top of the pile by asking for less!
- Are you sure you want to demand every possible repair? Consider the true price of each repair found by the home inspection. Before demanding the repair, consider whether the repair is truly important to you in the first place. If so, what is the cost? Is this something you could inexpensively do yourself after watching a few how-to videos online? If not, what will a contractor cost? Consider whether to offer going splits with the seller. A large repair that might kill a sale may be affordable when buyer and seller work together.
- Learn to offer the appearance of more without putting everything on the table. There are ways to do this effectively. Yesterday I stopped a buyer from laying their entire bankroll on the table using an Acceleration Clause. While competition forced their price higher, I kept the increase to a more reasonable $1,000 instead of $5,600.00. In addition, I have a couple of other psychological tricks that keep price points lower than they appear to sellers.
Want to talk more about some great options in a tough market, including that Acceleration Clause and the psychological tricks? My name is Mike, my phone number is 414-207-2938, and my email is firstname.lastname@example.org