How to succeed in a Red Hot Seller’s Market

First Time Home Buyer

You are in the market to buy a home. While checking all those websites where you know you can find your next dream home, it might dawn on you. Slowly but surely, you will have the uncomfortable feeling that the real estate market doesn’t make sense anymore. It is completely crazy right now.

Well, you are not the only one who is puzzled and thinks that the world is out of whack. At least in the near future, you must realize that the rules are different than they used to be.

Gone are the days when a buyer made an offer, usually 5 – 10 % below the asking price, asking for tons of repairs, asking for additional incentives, and getting the seller’s signature on the deed.

However, there is no need to run scared. With the right strategy, you will prevail. Be prepared that the first offer might not be successful. Competition is fierce, and the chances are slim that you will not end up in a multiple offer situation. Stay focused, and you will win the next home-buying battle.

In Real Estate, the Asking Price is as much about psychology as it is about Reality.

“If you know the enemy and know yourself, you need not fear the result of a hundred battles.” ― Sun Tzu, The Art of War.

Calling the home seller your enemy is a little far-fetched. At least we can refer to them as opponents because their interest in the property is opposed. The seller wants the highest price possible without making too many costly concessions; the buyer wants to keep as much money as viable in his pockets. Asking for concessions is a perfect way to lower the asking price without insulting the seller too much.

Before we dig into the buyer’s tactical decisions, let’s look at the psychology behind the seller’s home pricing strategy.

The Low-Ball Pricing Strategy

The sole purpose of the Low-Ball pricing strategy is to attract large numbers of buyers to create a bidding frenzy. A low price gets buyers in the door. The more buyers see it, the more excited they’ll be, and the more they want to buy. In today’s market, with an exceptional low inventory, buyers will go overboard with their bids. This “trick” is probably as old as humankind.

Pricing the Home at Market Value

Another selling tactic is to price the home at market value. This tactic will not generate as many buyers as the Low-Ball one, but it will attract different people. If you are not into bargain hunting, you want to buy something solid. When you can see the value, or when you have the feeling that the home is right at market value, you can “smell” the seriousness of the deal. If the seller wants to go this route, his house has to be in “near-perfect condition. If it needs to have many repairs and upgrades, it will fall into the first category.

In today’s market, even a home priced at market value will generate a bidding war. The final price may not increase as much as the Low-Ball home because it is already starting at a higher price level. But don’t expect to get it for the asking price.

Over-priced Homes

You may think that over-priced homes are tough to sell, but even those homes will find a new resident. However, this strategy makes only sense when the house has some “special” features.

The location in comparison to other homes in the area may be one of those features. Closeness to biking and hiking trails may be another feature that triggers buyers to grab for their checkbook.

The feature we are talking about needs to be unique and intrinsic. Having cherry wood kitchen cabinets doesn’t do the trick. Cherry wood kitchen cabinets in a wide-open kitchen overlooking a killer view – well, that makes all the difference. If the killer-view is really killing, enough buyers are even willing to pay more than the overpriced asking price.

How to Succeed in a “Home-Buying Battle”

You need to move fast! Tour the property the moment it hits the market. It is already too late the next day, and forget about “next time I come to Florida.”

Have all your finances in order and have a competitive edge, no matter the market! Cash is king, but not everybody has so much cash on hand. Paying with a loan is a disadvantage, but it doesn’t mean that sellers would not consider it. But you have to go well beyond a pre-qualification letter. A pre-qual letter gets you nowhere because the value of it is “zero.” The bank can always withdraw the pre-qualification letter, and sellers know that. Obtain an approval letter instead, where the lender verifies your income and assets. It tells the seller that you have your finances in order and are ready to buy.

Make an aggressive offer. Full Price gets you nowhere in today’s market. If you really want the property, you may want to use the asking price as a starting point, but be prepared to offer 5%, 10%, or even more above the asking price. Consider writing an offer with an escalation clause. Agree to make up the difference in the appraisal if the difference is not too significant.

You may waive your right to inspection. However, you still should have an inspection. The inspector may turn up serious defects or defects the seller didn’t disclose that legally enable you to pull out of the offer. But remember that you agree to accept most of the defects in the house by waiving your inspection right.

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