Part of your real estate agent’s job is to negotiate market value for the home you want to buy. To come to this market valuation, your real estate agent will send you a comparative sales analysis to determine the market price range of the home you like. This report compares recently sold homes with very similar criteria to the home you want to price to find the value of the subject home. A home’s value can change pretty quickly too. Various factors come into play such as level of competition, interest rates, and inventory, among other things. Having an agent that knows the market well is very important.
A Seller’s Market
When there are more buyers and fewer sellers in the market, the market becomes a sellers’ market.
In a seller’s market, be ready for the contract price to come close to or even above asking price, assuming the home is priced close to its market value. When lots of buyers are searching for a home with very little inventory to choose from, you’ll likely see home prices rise.
Highest and Best
When you put in an offer in a seller’s market, you may end up in what’s known as a “highest and best” offering situation. This is when multiple buyers present the highest and best offer they can give, and want to give, to the seller. My advice to my clients is to present the highest offer that you and your family, or just you, feel comfortable with. If you lose the house to another buyer, you don’t want to think to yourself: “Uhh! If I just offered a little more, I could have gotten my dream home!” If you outbid the other buyers, you don’t want to regret your decision and now think you’ll miss out on enjoying other aspects of life because you overpaid. The decision on what to offer is tricky.
There is no single right answer that works for everyone when you enter a “highest-and-best” offering scenario. Your agent can inform you of market conditions and the price range the home is currently worth on the market. There’s a lot more that goes into your decision on what you want to offer. You may decide paying a little over the value is worth it for many reasons such as the need to move quickly, your budget, the time consumption of looking for a home to buy, taking advantage of low-interest rates, etc. Everyone’s motivation for their offer is different. Talk to your agent during your decision process as they will likely be able to surprise you in how helpful they can be. Your agent can help you make the best decision for you.
Know the Market
Before you start going to look at homes, you should know the current market conditions. Discuss this with your agent before you start looking. It’s really important that you are not looking at homes well over budget in a sellers’ market, thinking that you’ll be able to get a large discount off the purchase price. Don’t go look at a house, fall in love, and then find out you can’t afford it. A good agent will not let that happen. Get that pre-approval letter your agent keeps asking for. This is a huge first step in the home buying process.
Set a Budget
After you know what your lender says you can afford, talk to your agent about what you want to pay. They can be two different numbers, the second just can’t be higher! Your lender will tell you the highest mortgage amount you can get, so unless you have a very nice friend or family member to give you money, you can’t buy a home for more than that.
In a sellers’ market, you don’t want to be looking at homes listed above what you can afford. This makes the home buying process significantly more stressful. You don’t want to get caught up in comparing homes you can afford vs dream homes causing unrealistic expectations. Requesting to see homes above your budget in a sellers’ market will cause your agent to decline your showing requests. We are saving you from heartbreak not trying to cause it!
Have Realistic Expectations
Looking at homes in the price range you can afford will set you up for success, but you may still find the potential of ending up in a “highest and best” scary and stressful. A few ways to avoid this is by finding a home that has sat on the market for a long time, one that may need some or a lot of work, or the easiest thing to do is offer asking or even above asking right off the bat. Ask your agent what they predict the situation will be so that you have the right mindset on your offer when you’re viewing the house.
Starting your hunt for a home should start with a conversation with your agent. Knowing what to look for, what expectations to have, and understanding the home buying process will make buying a home more enjoyable and much more smooth.
Buying a home can be a very emotional, stressful life event. Having the right agent on your side can make all the difference!
To get started on the right path, contact a Sail Lake Realty agent here!