I’ve hinted at it in some recent posts, but the time has finally come to share the big news with all of you. What’s the big news?
We’re buying a home! To be more specific, we’re buying a condo.
I’ve planned for this moment for over two years now and it’s a pleasure to finally see it come together. It’s technically still not official yet, and we still have weeks until closing, but we’re almost there. We’ve passed so many steps that I feel comfortable announcing it to the world.
But, it wasn’t easy. In fact, while I read up on it and planned for buying a home for several years now, I didn’t expect this competitive of a market. In fact, many people would classify this real estate market as a seller’s market – which all boils down to making it that much more difficult to purchase a home.
What is a Seller’s Market? And What Does this Mean for a Buyer?
Real estate terms can be confusing, so let’s cover some of the basics before I tell you all about my home buying experience.
Traditionally speaking, a “seller’s market” is often defined as having a greater demand than the supply. In other words, there are more people wanting to buy a home than people listing their homes. If you didn’t take an economics course in college, when supply goes down and demand goes up, this means one thing: price goes up.
And real estate is no exception. When it’s a seller’s market, it means the seller has all of the advantage. A seller’s market not only means that you will likely pay more as the buyer, but it will be even more difficult to buy a home that you like.
How I Discovered that it was a Seller’s Market
While I knew that buying a home would be competitive because we are close to a large city, I had no idea HOW competitive it would be.
My wife and I had our minds set on where we wanted to live. We wanted to live close to public transportation, in one of the nicer neighborhoods just outside downtown where there is also plenty of green space. And anyone who knows real estate knows that these features are attractive to many buyers. (Think: Location, Location, Location).
I had been watching the market for a good 6 months now. After Mrs. 20s got a new job, we decided we wanted to move forward with buying a home. Casual watching turned into serious shopping.
Within the first two weeks of actually visiting condos that we liked, we placed two bids on condos that we liked. Both were listed at reasonable prices within our budget and both times we were outbid. The real kicker is that both of our bids were over the listing price. We came to find out that the winning bids for both of them were at least $40,000 over asking.
It was after the first time that we were outbid that I knew we had stumbled into a very competitive real estate market as a buyer. The words “ridiculous,” “crazy,” and “insane” are all words that I used to describe it to my friends and family, but that doesn’t even scratch the surface. Did I also mention that both condos had accepted offers within 6 days after going on the market – with the 2nd one was snatched up within 4 days.
What are Sellers Looking For?
After being outbid on the first one, I knew that we had to step up our game if we were going to get a property that we really liked. We were willing to settle for a condo that didn’t have all of our wishlist items, but there were a number of things that it had to have, which included:
- Two bedrooms
- Street parking (at least)
- On-site, private laundry
- Good neighborhood
- Within our budget
- Over 950 Sq Ft
When you find yourself in a seller’s market, there are things that you can do make your offer stand out, but first you have to understand what the seller is looking for. It’s one thing to know what you want (as the buyer), but it’s another to understand the seller’s point of view. Here’s a general list of things a seller is looking for:
- A high offer (yes, this is obvious, but still worth mentioning)
- A buyer who can get approved with for a loan (i.e. good credit on top of having money)
- A Buyer willing and able to move fast (i.e. not contingency on selling their home, etc.)
- Ideally, a buyer willing to buy the property AS IS, without an inspection (Yes, people do this)
How to Make a Competitive Offer
After understanding what it is that buyers are looking for (other than a high offer), it’s time to craft your offer on the home. If you do it wrong, you could lose your shot at the house of your dreams. But be careful – you don’t want to overpay just to get the property.
1 – Stalk the Market for New Properties (constantly)
Before you make the offer, you have to find the property as it comes on the market. This means constantly looking for new properties so that you can literally line up a visit within hours of it being listed. After we took our sweet time with the first condo, we had emailed our agent within an hour of the 2nd condo being listed. It ended up selling within 4 days, and that’s after they stated that they would be reviewing offers for three days.
2 – Submit a Large Amount in Earnest Money with Your Offer
Show the seller that you are serious by putting more money upfront. If you are serious about buying, you should have the down payment ready to go anyways, so why not impress the seller with a large amount upfront. It will go towards your down payment, but why not submit more in earnest money to show you are committed. We submitted 5% as earnest money with our 2nd offer.
3 – Offer to pay more at Purchase and Sale
After completion of inspection, there is what is called purchase and sale. This may vary in different states, but it is a binding agreement, which details the transaction between the buyer and seller. In MA, it’s standard to put 5% down at time of the P&S.
To show that we were serious with the 2nd condo, we offered 10%.
4 – Consider Waiving Your Inspection Contingency
When you place an offer, you have the option of placing certain contingencies on your offer. In other words, it allows the buyer to back out if certain conditions are not met. A popular contingency is a home inspection. This allows you to have a professional inspect the home and make sure that it is in good shape. While we kept the inspection contingency on one property, we waived it for the 2nd one – especially because it was a relatively new building.
5 – Offer MORE than Asking
In a seller’s market – just because someone is asking for X, does not mean they expect to receive just that amount for the condo. As I mentioned, both condos that we bid on were originally sold for $40,000 over asking. If you want to be considered, you have to offer what you think the property will sell for. We went through “comps” (similar condos and what they sold for) with our agent prior to placing our offer – and we made a very aggressive offer on the 2nd time.
6 – (Optional) Write a “Love Letter”
My agent also informed us that some sellers can be moved emotionally. He advised us to write a love letter to accompany our offer. This is what it sounds like – a letter explaining why you love their home and how you could see yourself taking care of it. Many sellers like to know that their property will be well taken care of because they have ties to it. This can help your case.
Of course, you run the risk of sharing too much information and there’s always the chance of the seller not being moved by this type of information. But, in my eyes, there’s very little down side. In other words, it’s hard to see it hurting your chances.
Of course, even if you follow all of these steps like we did, there is still the possibility that you won’t get the house that you want. Even though we bid well over asking, placed 5% with the offer, offered 10% at P&S, were going to move quickly, we were still outbid.
But, the moral of the story is that while it seemed impossible, we were able to buy a condo in one of the most competitive markets that I have seen or heard of – because we were aggressive and moved fast. I’ll share more details on how we ended up with our condo in the coming weeks – so stay tuned. If you find yourself in a seller’s market, prepare now. Get your money in order, do your research and be ready to pounce when you see a property come on the market.