Buying a Home in a Seller's Market
Are you searching for a house in a market that favors the seller? Learn about the characteristics of a seller’s market and discover tips that can help you find your perfect home.
There is a lot of discourse regarding the best time to buy a home, further complicated by the fact that real estate markets are always fluctuating. While purchasing a home in a buyer’s market is preferable, this is not always practical for prospective homebuyers.
Sometimes, homebuyers need to buy a new home in an unfavorable housing market. This is especially true today, as many areas of the United States are experiencing rising prices and increased demand. Consider the following:
- The REALTORS® Confidence Index Survey of May 2021 revealed that the average home in the U.S. sold within 17 days on the market—compared to an average of 26 days the previous year.
- The national inventory of newly listed houses declined by 39.6% in 2020, according to Realtor.com.
- According to a report by ATTOM Data Solutions, home prices in December 2020 were up by at least 10% year-over-year in three-quarters of the country.
These trends indicate that homebuyers should be ready to contend with a competitive market, but keep in mind that housing markets vary widely depending on which part of the country you live in. Understanding the state of your local housing market can help you develop a plan for obtaining a mortgage and buying a home.
Buyer’s market vs. seller’s market
The terms “buyer’s market” and “seller’s market” are used to describe whether the housing market favors the homebuyer or favors the seller.
In a buyer’s market, there are more homes for sale than there are potential buyers. Home prices tend to be lower when there is less demand for homes since sellers need to compete with one another to attract buyers. During a buyer’s market, houses usually remain on the market for longer, and buyers may be able to negotiate on prices.
A seller’s market refers to a housing market in which there are more people looking to buy than there are available homes. This shortage of homes gives the sellers an advantage, allowing them to drive prices up. In a seller’s market, buyers tend to have limited negotiating power.
- Supply exceeds demand
- More homes on the market than prospective homebuyers
- Demand exceeds supply
- More prospective homebuyers than available homes
Determining the state of the housing market
Without a background in real estate, it can be hard to know whether your local area is in the midst of a buyer’s or seller’s market. One way to determine the state of the housing market is to keep an eye on local listings.
If there are very few homes available in your area, you might be in a seller’s market. Over time, you may see average home prices begin to rise or fall. Rising prices indicate a seller’s market, while falling prices indicate a buyer’s market.
While many parts of the country are currently experiencing housing shortages and competitive bidding wars, housing markets are always subject to rapid change. If you’re interested in buying a home in the near future, be sure to monitor your local listings to get an idea of market conditions.
Characteristics of a seller’s market
The characteristics of a seller’s market are more far-reaching than you might imagine. Buyers looking for a home in a housing market that favors the seller should be prepared for the following:
- Higher asking prices
- Houses that sell quickly
- Bidding wars amongst buyers
- Limited room for negotiation
- Fewer homes on the market
Buying a home in this type of market can be challenging, but by understanding the trends associated with a seller’s market, buyers can ease their frustrations and get a leg up on the competition.
How to buy a house in a seller’s market
When there is a shortage of houses and high competition among buyers, it’s imperative for buyers to go into the homebuying process knowing exactly what they want and what their plan of attack will be. If this is your first home buying a home, it’s especially important to understand the steps to getting your first mortgage. Listed below are four essential tips for buying a house in a seller’s market.
1. Obtain a mortgage preapproval
When you begin searching for homes, a mortgage preapproval letter can let sellers know that you are financially prepared to move forward with purchasing their property. This can help you stand out from competing buyers as well as speed up the closing process if your offer for the home is accepted.
In order to get preapproved, you’ll need to apply for a mortgage. Your lender will review your finances and provide you with a loan estimate that outlines your loan amount, the terms and conditions of the loan, interest rate, and more. Perhaps most importantly, your loan estimate will include a maximum amount for how much the lender is willing to offer you for your mortgage.
Preapproval letters are usually valid for around two or three months. Since you often need to act quickly in a seller’s market, it’s recommended to obtain preapproval before you start touring homes.
>> Related Reading: What Credit Score is Needed to Buy a House?
2. Establish a budget
The competitive nature of a seller’s market means that bidding wars are frequent and houses will often sell above their initial asking price. With this in mind, it’s important to establish and stick with a budget before making an offer on a home.
The details of your mortgage preapproval can help you determine your budget and guide your home search. You should also consider how much money you have available to put towards a down payment. Use mortgage calculators and home affordability calculators to get an idea of what your monthly payment would look like based on different variables.
Once you set an upper limit for your budget, be sure to stick with it throughout the entire homebuying process, even if a bidding war breaks out.
3. Act quickly
When there are fewer houses available on the market, homes tend to sell quicker. After viewing a home, try to make a decision on it as quickly as possible. If it meets all or most of your needs and falls within your budget, don’t hesitate to make an offer. The sooner you submit your offer, the better chance you have of securing a lower price.
Keep in mind that in a seller’s market, there is limited room for negotiation, and there may be other buyers submitting offers for the home you’re interested in. According to the REALTORS® Confidence Index Survey, homes in the U.S. currently receive an average of five offers before closing. To avoid missing out on the perfect home, be ready to make quick decisions.
4. Keep your hopes up
Losing a bid to another buyer can be discouraging, but rest assured that this is commonplace when buying a home in a seller’s market. Keep an eye on your local listings and sooner or later, another home that suits your needs is bound to come around.
Remember that even though you need to act fast in a seller’s market, buying a home is a financial responsibility that should not be taken lightly. If you’re not finding the perfect home for you, don’t feel pressured into making an offer. You may want to consider waiting until the market cools down and there are more houses to choose from. In the long term, you will be glad that you held out for your dream home.
Discover Cadence Bank’s mortgage solutions
Buying a house in a seller’s market can be difficult, but being prepared can help. Beginning the mortgage approval process is one of the first steps towards homeownership. To learn about Cadence Bank’s mortgage services, including the steps for obtaining preapproval, get in touch with a mortgage professional today. Our team of loan officers are happy to walk you through the process and answer any questions you may have along the way.
This article is provided as a free service to you and is for general informational purposes only. Cadence Bank makes no representations or warranties as to the accuracy, completeness or timeliness of the content in the article. The article is not intended to provide legal, accounting or tax advice and should not be relied upon for such purposes.