“You make your money when you buy.” Every real estate investor who has been in the business for a reasonable length of time understands this. The cardinal rule of real estate investing is always to buy low so you can sell high. But when you are operating in a seller’s market, this can be challenging.
In a housing market where the real estate inventory is low, finding good deals can be difficult. Buyers are apt to get into bidding wars with one another and drive the prices of the few available homes even higher. But this is not to say buying profitably in a seller’s market is impossible.
Real estate markets are always in flux; conditions may shift in a season, year, or decade. A market that favors sellers today may revert in favor of the buyers tomorrow. What is important is that you develop the range of abilities to make money in any market as a real estate investor.
To survive, you must build capabilities to compete in markets that others are exiting because of the high cost of properties. Developing this capacity will transform you into a full-fledged resilient investor who does not need conditions to be easy before he or she can thrive.
Instead of being rigid and unresponsive to your market expectations, you need to become flexible and adaptive. You need to learn how to react to turn a disadvantage into an advantage. You will gain the critical ability to objectively access the realities of a market and respond as required by doing this.
How do you do this when the housing market you are buying in is definitely a seller’s market?
5 Steps for Negotiating When Buying Property in a Seller’s Market
1. Get Pre-Approved
You will waste both your own and the seller’s time in a seller’s market if you don’t have pre-approval for a mortgage before approaching sellers. Before you begin your search for a property, have a custom pre-approval letter ready to show the seller.
2. Understand the Market Value Range and Know Your Limits
In a seller’s market, you will see many unrealistically high list prices. Although property prices in a seller’s market trend upwards, there is still a price range. Do not let yourself be bullied into making an offer far beyond what similar properties have sold for.
3. Take Action Immediately
When you find a property you like, do not take the weekend to think it over. It could be gone by the time you are ready to make your offer. Have everything you need to make your move ready; you never know when the right deal will show up.
4. Your Offer is Everything
Your offer holds often holds the key; make it count. How you make an offer in a seller’s market is very different from what you do in a buyer’s market. Here are the important things to know:
An offer that closely matches the owner’s expectations and their agent is more likely to get accepted. Have your agent call the listing agent to find any additional information that can help you make the offer correctly.
Your Offer Price
In a seller’s market, never make a low-ball offer. It is best to submit a higher offer, but a full-price offer is the next best thing if you don’t want to do that. A full-price offer with good terms may be more attractive to sellers than a higher offer with poor terms.
Limit or Eliminate Contingencies
For instance, the appraisal for the home is likely to come in lower than the agreed sales price; you must be willing to offset the balance. The fewer contingencies in your offer, the easier it will be for a seller to accept the offer.
Offer A Larger Earnest Money Deposit
This will demonstrate your commitment and give you an edge over competitors. It will also tell the buyer that you have available means to pay for the home immediately.
Don’t Make Demands
You would probably like the seller to do a few things as part of the deal (such as improving the home’s appearance or leaving some fixtures behind), overlook them.
Include Your Pre-Approval Letter and Proof of Funds
Adding these documents to your offer will show your level of preparedness and make it more difficult for a seller to say no to your offer.
5. Follow the 100:10:1 Theory
To buy one home, look at as many as a hundred homes and make at least ten offers. There is a huge chance that you will find more than ten you like out of the one hundred homes you look at.
There is also a likelihood that of the ten offers you make, at least one will be accepted. This is simply the law of averages at work; every single offer you make improves the probability of success.
If you make one offer, you place all your hopes on that single offer. If you make ten offers, each one gives you a 10% chance of failure or success. The odds of succeeding with that are better.
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