It’s a seller’s market, and potential homebuyers may face stiff competition in cities across the country. Nationwide, active real estate listings were down 26% year-over-year in November 2021. Despite the limited number of houses for sale, demand from buyers remained strong. Houses sold faster — and for higher prices — than in November 2020.
If you live in a competitive market, you may notice fewer houses listed for sale. Homes tend to go off the market quickly, and many sell for more than their asking prices after receiving offers from multiple buyers. Shopping for a house in this market may feel discouraging, but with some planning, it’s possible to land the right home.
How Can You Prepare for House Hunting in a Competitive Market?
You could take a few steps to prepare for house hunting in a competitive market:
- Narrow down what you are looking for
- Get your finances in order
- Visit a lender to get pre-approved for a home loan
- Find a realtor who understands your needs
Finding the Right House: Assess Your Wants vs. Needs
Before starting your house hunt, make a checklist of the features you need and want from your house. Establishing firm criteria before shopping could help you make quick decisions when you come across new listings.
Needs are features that you consider must-haves for your home. For example, you might decide a house needs enough bedrooms for each family member and a large, fenced backyard for your dog. Conversely, wants are features that might be nice to have but are not true essentials. Features you might list in this category could include hardwood floors or a detached garage.
Talk to a local realtor to help make a realistic house hunting checklist. They could help you understand the kinds of homes available in your area and how certain features on your list may affect the sale price.
Get Your Finances and Paperwork in Order
To prepare for your house hunt, take the time to get your finances in order:
- Ensure you have a steady source of income that could support your dreams of homeownership.
- Consider working with a financial advisor to determine how much you could afford to pay for your home and set aside adequate savings for your downpayment.
- If you have debt, pay as much of it down as possible before taking on a home loan.
In addition, gather any documents you may need for a successful house hunt. Mortgage lenders may ask for documents that prove your income, such as recent pay stubs, W-2 tax forms, and tax returns from the past two years. Lenders might ask for other documents to prove your assets and debts, such as bank statements, credit card statements, and student loan statements. Ask your lender for a list of documents you may need to collect.
Get Pre-approved for a Home Loan
Nearly nine in ten (87%) buyers finance their home purchase. If you plan to take out a mortgage for your home, visit a lender’s office before starting your house hunt. Sellers may expect buyers to be pre-approved for a home loan, especially in a competitive market. Having mortgage preapproval shows sellers that you are a serious buyer who is prepared to make an offer.
Preapproval for a home loan means that a lender has assessed your financial situation and decided to extend a loan. The pre-approval process may involve pulling your full credit report and verifying your employment and income. If the lender chooses to offer credit, they may provide a preapproval letter that lists the loan details, including the mortgage amount.
Since your finances could change over time, preapproval letters may have an expiration date. For example, an offer might last for 60 or 90 days. If your offer expires and you have not found the right house, you can apply for a new preapproval and continue your search.
Find a Realtor Who Understands What You’re Looking For
When you are ready to search for the right house, contact a real estate agent and discuss the features you need and want from a home. A realtor familiar with your local market could show you suitable homes before they officially hit the market. This could help you see options before other buyers learn it is for sale, driving up the competition.
Realtors may also be aware of off-market listings. Also known as pocket listings, these homes are sold privately without being listed on multiple listing services.
Avoid Falling in Love With a Home You Don’t Own
Shopping for a home in a competitive market can be discouraging. You might end up putting offers on multiple houses before one gets accepted. Before landing a home, you could lose bidding wars or see houses sell to someone else before you get the chance to make an offer. To prepare for house-hunting, avoid getting attached to homes you do not own.
It can be easy to fall in love with specific properties, but this can lead to disappointment if another buyer snaps up your “dream home” before you do. Remember that even in a competitive market with limited inventory, you could find other properties that meet your dream home wish list criteria.
Staying detached while house hunting can also help you stick to your intended budget. When you fall in love with a home, offering more than you’ve budgeted to beat other buyers in a bidding war can be tempting.
How Can You Make a Winning Offer On a House?
In a competitive market with more buyers than houses for sale, sellers may receive multiple offers on their homes. Your realtor may recommend strategies to help your offer stand out. These strategies may include offering more than the asking price, offering concessions, being more responsive than your competition, or even making an emotional appeal to the seller.
Make Offers Above Asking Price
When more than one buyer wants the same home, they may increase the price of their offer to try to beat their competition. This may result in bidding wars that increase the price, and the winning bidder may pay more than the original asking price.
In November 2021, 44.3% of homes sold for more than their list price, according to data provided by Redfin, a national real estate brokerage. In some cities with ultra-competitive housing markets, homes selling for more than their list price have become the norm. For instance, in the San Francisco metro area, nearly 71% of homes sold in November 2021 sold for more than their asking prices.
But how much more than the asking price should you offer? That could vary based on your local market and the individual home, so ask your realtor for advice. They could provide information about comparable homes’ worth and help you submit an educated offer.
Consider Offering Concessions
Sellers in competitive markets may receive more than one offer above the asking price. Offering concessions may help you stand out among other strong offers. For example, you may waive certain contingencies, which are conditions that must be met for the home sale to proceed.
For example, realtors may suggest waiving the home inspection contingency. A home inspection could help identify significant issues with a home, such as faulty wiring or a sinking foundation. This contingency may allow potential buyers to negotiate with the seller about repairs or even walk away from the sale. However, note that there is a real risk with waiving this type of contingency, which means agreeing to buy the property in “as is” condition.
Other concessions could include offering the seller a flexible timeline to close on the house or offering to pay the seller’s closing costs. Ask your realtor for advice about the concessions that could make your bid more competitive.
Be Fast to Respond to Questions and Requests
Homes in competitive markets may sell within a matter of days. Homes in the Seattle metro area spent an average of just six days on the market in November 2021. Respond to communications from your realtor or the seller quickly if you live in a competitive market.
For instance, the seller may make a counteroffer in response to your bid. A counter offer means the seller accepts your offer if you make specific changes, such as paying a higher price for the home. Time is of the essence since the seller could decide to withdraw the counteroffer and move forward with another buyer. Responding quickly could help you beat your competition and land the right house.
Write a Personal Letter to the Seller
Sellers in competitive markets may receive multiple offers over their asking price and offers with attractive concessions. To stand out among other strong offers, your realtor may recommend writing a personal letter to the seller. The goal of a personal letter is to build a connection with the seller and hopefully sway them to choose you over the other potential buyers.
You might spell out what you love about the house in a personal letter to the seller. Try to find a bond with the seller by mentioning hobbies you may share. For example, maybe you love the seller’s flower garden and are excited to maintain it, or you can see yourself whipping up gourmet meals in their chef’s kitchen. Sellers who have an emotional attachment to their homes may prefer a buyer who might love their home as much as they do.
Ask your realtor for advice if you need help deciding what to include in a personal letter. They may offer details about letters that have helped other buyers land their dream homes.
However, some markets may discourage letters. For example, Oregon recently banned the practice due to concerns about housing discrimination.
The Takeaway: It’s Possible to Land Your Dream Home
House hunting can be discouraging, but even in an ultra-competitive market, it’s possible to land the right house. To set yourself up for a successful house hunt, get your finances in order and find a realtor who understands your needs. When it’s time to make an offer, work with your realtor to craft an offer that stands out.