Tips for Buyers in Competitive Markets, Part 1
Low inventory all over the country? This phenomenon, so far, shows no signs of going away. But neither do prospective homebuyers, as metro after metro area reports an increase in home sales—despite drastic reductions in available homes for sale. Yes, it’s a tough out there. Today we bring you part 1 in a 2 part series: Tips for Buyers in Competitive Markets. Today we focus on four areas of “training” you need to prepare for the battle ahead. In our next blog, we’ll talk about the “weapons” you need to succeed.
List Vs Sale Price
Unlike so many American consumer goods, the list price of a home is not necessarily the sales price. The concept of making a bid, particularly knowing how much to bid, is a new skill set for most first-time homebuyers.
In a "down market," sellers often list homes at the low end of a possible range of prices generated by comparable sales and similar data for the location and type of house. And then buyers either accept that price, knowing they’re getting a decent deal, or they underbid and succeed there too, knowing the seller doesn’t have many options.
In an "up market" like we’re seeing so often across the nation now (thanks in part to the persisting low inventory of available homes), sellers have more control. They may now list at the high end of the price scale; or they may choose to list at an artificially low price to create a bidding war.
At the other end of all this is the hopeful buyer, wanting to win the bidding war but with no chance to do so without a intelligent strategy.
Bidding isn’t just about who has the most money to throw around. Just as with any kind of scrimmage, if you’ve done your training pre-battle, you’ll fare better than those untrained. Trying to buy a home in this tight of a market can be war. Here arr ways to fortify yourself.
1. Local Knowledge: Understanding the local market is the first step in predicting what the competition will be on any given property. Your Realtor® can give you the best, most current, most exhaustive market data and help you make sense of it.
2. Understanding Median Prices: Though the median list and sold prices are aggregate, not individual numbers, you can logically assume that if a home is for sale within the price range the majority of homes in that area are sold for, the competition for that home will be stiff.
3. Understanding Days on the Market: Homes that have lingered on the market in areas with low inventory likely have issues. This does not mean the home won’t work for you. Maybe you are interested in an up-and-coming neighborhood that’s still too rough around the edges for most buyers. Perhaps you are an expert at renovation. A high DOM number isn’t a deal killer, but it is a red flag. And know also that competition for fresh listings is much higher than for stale ones.
4. Understanding the Seller’s Strategy: Using the comparative sales your Realtor® has pulled for you, you can see where, on a scale of values, the home you’re interested in, lies. If it’s on the low end of the scale, yet inventory is down, sales are up, and prices are up in this neighborhood, you have identified the seller’s likely marketing strategy. The home’s price: artificially low. Expect a bidding war to ensue.
With these tips, and a smart, experienced real estate agent, you can be not only a competitor in today’s hot market, but a winner as well.
Anna Marie Erwert writes from both the renter and new buyer perspective, having (finally) achieved both statuses. She focuses on national real estate trends, specializing in the San Francisco Bay Area and Pacific Northwest. Follow Anna on Twitter: @AnnaMarieErwert