How To Act Strategically as a Buyer in Today’s Market
When purchasing a home, whether it’s a primary residence or an investment property, it’s important that you act strategically. Obviously, you want to make sure that you’re getting the best possible price on a home. However, you also don’t want to make such a low offer that you offend the seller and shut the deal down before it really has a chance to get started.
There are constantly macroeconomic factors that impact the real estate market. As of right now, those factors have created a market that largely favors the sellers. However, that doesn’t mean that you need to completely sit on the outside looking in. Instead, it just means that you need to be more strategic to put yourself in the best possible position to win the deal.
Understand the Market
Perhaps the most important aspect of purchasing a home strategically is to understand that you are buying in a sellers’ market. Work with your realtor to determine the market absorption rate, which is how many months it would take for every home currently on the market to sell if no new homes were added. This kind of data can help you determine if you need to strike now or give things some time to play out. If you don’t think that it’s feasible for you to invest in the current market, consider some alternative investment opportunities, such as real estate syndications.
Leading With Your Best Offer
When making an offer on a piece of real estate, it’s easy to assume that you should open with a low offer so you and the seller can come together on a price that works best for both of you. Unfortunately, that’s simply not a good strategy right now. Many buyers assume that coming in low helps them get the best deal, but in the current market, you’re probably going to have your offer rejected or ignored. Sellers are likely to get multiple offers on their property since the housing inventory is currently low. That means that if you open up at $40,000 less than asking price, your offer won’t even register on their radar. Leading with the best offer may seem counterintuitive, but it gives you the best chance to get the home that you’re pursuing.
Be Prepared for a Bidding War
As we’ve already established, sellers are likely to receive multiple offers on their property. Just because you open with your best offer doesn’t mean that you’re offering all the money that you have at your disposal. Striking the balance between your best offer and all of the money that you have means that you will need to be able to be daring while still operating conservatively. Let’s assume that you make an offer on a home and that two other buyers make the same offer. Obviously, the seller will let you know that you’re offer has been matched in an attempt to get you to increase your offer. Depending on your plans for the home and other market factors, you need to be willing to increase your offer.
Consider Using Cash
Obviously, this strategy will work best if you have already established yourself within the real estate industry. Many buyers don’t have access to the kind of money that will be needed to make a full-cash offer on a home. However, if you do, you’re automatically in the driver’s seat. You may have some trepidation about using a large amount of cash to purchase a single property, but if the property is in a hot area and in good condition, you can secure a deal quickly by offering cash. Many sellers don’t want to wait for a buyer to obtain financing, so if you can come in with a large cash offer, you may be able to find a seller who wants the deal to close quickly.
Finally, consider waiving some of the contingencies that buyers have access to. This can make your offer more appealing to a seller. If you fill your offer with inspections contingencies, appraisal contingencies, and various other types that can slow the deal down, you may lose your offer in the mix. Waiving contingencies can help you stand out from a crowded group of sellers.
Obviously, the real estate market won’t be like this forever, and there will be a time where the market shifts and buyers are in a greater position of power. That’s simply not the case today. Understanding how to act strategically can help you build your own net worth while helping your heirs enjoy the fruits of your labor.