Crazy. Horrible. Grueling. These are the words real estate agents use when asked to describe the current state of the market and what it’s like to buy a home today. Buyers are facing unprecedented challenges, they say, due to a confluence of housing market conditions:
- Pricing. Redfin reported earlier this month that the national median home-sale price hit a record high of $377,200 in May, up a record 26% year over year. Over half of homes — 54% — sold above their list price in May for the first time on record.
- Bidding wars. Redfin also reported this month that seven in 10 buyers — 70.4% — faced bidding wars in May. That’s down slightly from the prior month, but it still indicates that house hunters are facing unprecedented levels of competition as demand skyrockets.
- Lack of inventory. Real estate agents cited a lack of inventory as the main hurdle preventing their clients from completing a transaction, according to the National Association of Realtors. Due to the pandemic, homeowners have been reluctant to list their homes, so available homes — in any condition — get snapped up quickly.
Donna Deaton, managing vice president of Re/Max Victory + Affiliates in Cincinnati, who has 19 years of experience, sums up the current buyers’ market as follows: “It’s absolutely horrible,” she said. “We don’t have any inventory. If you’re an FHA or VA buyer, you don’t stand a chance. If it’s a new property on the housing market in an ideal location and move-in ready, it’s a cash buyer or a minimum 20% down buyer. Most of the buyers in this area are putting offers in with no appraisal gap — willing to take care of anything that doesn’t appraise — and no inspections, which makes me cringe.”
So, what does this mean for buyers? Should they give up?
This is where an experienced local agent can make all the difference, experts say. “Real estate agents need to be creative and think outside the box when providing advice to their buyers,” said Sherri Johnson, a national real estate coach and speaker. “Agents should over-communicate to their buyer clients that they need to be motivated, financially prepared and have a sense of urgency to act on a home they want to purchase.”
Agents who have successfully guided their buyers into a home suggest the following strategies:
Pay cash if you can
“Cash is king,” Deaton said. “For a seller to have no financing contingency is one less hiccup.” According to a report by Redfin, buyers who offer all cash improve their chances of winning a bidding war by 290%, making it one of the most effective strategies to win a home in a competitive situation.
Put more money down
In a competitive housing market, a minimum down payment simply won’t cut it. That’s why FHA and VA buyers are having such difficulty. According to a Realtor.com survey released this month, 28% of respondents indicated they planned to offer more than a 20% cash payment, and 21% plan to increase their earnest money deposit. A National Association of Realtors survey similarly found that 48% of homebuyers made a down payment of at least 20% in the first quarter of 2021.
When Suzanne Petrizzi, a broker-associate with The Corcoran Group in Delray Beach, Fla., presents an offer on behalf of a buyer, she provides the seller with not only a mortgage preapproval letter but also bank statements to show that her clients can put down 30% on the contract. So, if they’re buying a $1 million house, for example, she will provide bank statements showing they have $300,000 to put down. “They have to show the seller they’re serious and have skin in the game,” she said. “In the past, you’d put down 10 or 20% on the contract. Now, it’s 30 to 35% to show the seller you’re all in.”
Allow the seller occupancy post-sale
Agents say that one of the reasons inventory is so low is because sellers are hesitant to list their homes when they know it would be challenging to find a new one. One way to alleviate this problem is to allow the seller to remain in the home after closing. Petrizzi recently used this strategy successfully, offering a sale/leaseback deal where her buyers closed quickly but allowed the sellers to remain in the home. Her buyers offered $1.075 million for a 1,500-square-foot home in a desirable neighborhood in Delray Beach, Fla. that was listed for $1 million. She included the sale/leaseback in the initial offer, allowing the sellers to stay in the house for four months, paying only the carrying costs. The deal closed successfully in less than a month.
Think outside the box
Some agents are coming up with unique strategies to get their buyers into a home. Harriett Lane, an agent with Coldwell Banker Realty in Atlanta, researches the market to find houses where deals have fallen through. She’s found that in many cases, the inspection has been done on the house already. So, she’ll approach the seller’s agent to ask for the inspection report. “Having the report makes buyers comfortable to give up due diligence and buy ‘as is,’” she said. “It makes for a better offer.”
Ant Stroud, an agent with Coldwell Banker Vanguard Realty in Jacksonville, Fla., has another strategy to counter the lack of inventory in his housing market. Most of his clients are in the military, drawn to the area by the three naval bases nearby. Knowing that many in the military move every three to five years, he searches tax records for VA loans originated three years ago. He’ll then send the homeowner a letter saying he probably already has a buyer for their house if they’re planning a move. “I get ahead of the game before they come to the table,” Stroud said. “Once they come to the table [and list their home], it’s the wild wild west.”
Perhaps the most important thing buyers can do today is to make a plan; a clear list of what they want is the key to success, said James Harris, a real estate agent and principal with The Agency in Beverly Hills, Calif. Harris has his clients create a budget, which helps them avoid getting trapped in the frenzy of a bidding war and becoming over-extended. He also has them identify the area they want to live, the type of home and any must-have amenities.
“A competitive market can have you shift strategies, but make sure the fundamentals don’t waver,” he said. “If a buyer indicates that they want to make some radical shifts to their fundamental list — considerably increasing their commuting time or putting an offer in on a property that is not near the amenities and services they originally listed as deal-breakers — encourage them to take a break from the search to take stock of the decision they are making. Drastic shifts and knee-jerk reactions are indications of frustration and impatience and can lead to mistakes.”