It’s a difficult time to buy a home right now, to say the least. Buyers are wary after hearing about the crazy bidding wars of 2021.
The problem: according to the latest data from Zillow, available homes for sale in the U.S. dipped below 900,000 this January. By comparison, there were about 1,067,000 homes for sale at the same time last year. Extremely low inventory means that the same pool of buyers will continue competing for a pittance of homes.
If you’re ready to buy a home, but not sure you can beat the grueling competition, consider using one of these four home buying tips to win your bidding war - and get the home of your dreams.
1. Go Under Budget, Over Asking
Better recently released a list of the top 20 cities with the highest sale-to-list ratio. It’s clear to see that in many different areas of the country, home buyers are struggling to overcome the same barrier - homes selling for far more than they’re listed for.
Many real estate experts are now recommending that you start your search below what you can actually afford - so that you have the wiggle room to beat out other buyers. If your budget allows for a $400,000 home, for example, look in the $350-$375,000 range.
In many cases, the best way to win a home is simply to offer the highest price, because making a profit is often at the forefront of sellers’ minds. If you know there are multiple buyers then lead with your best offer, rather than simply meeting the seller at their listing price. Although it can be difficult (and painful, even) to start above asking, in this market, it's often what's required to buy a home. Your agent will always be your best asset when it comes to determining how high you need to go in order to have a chance at winning - they can access data to see what comparable properties in the area are selling for.
2. Pay In Cash
Cash buyers are landing more deals than ever in today’s competitive market. Why? Home sellers are looking to deal with as few contingencies as possible - especially because they may be struggling to buy their own home and need a smooth transaction/transition. About 20% of all contract cancellations, after all, are due to financial contingencies (usually related to the mortgage/lender). And compared to a mortgage purchase, cash transactions can close much more quickly.
“Standing out in the competitive market is incredibly difficult right now, and being able to make a strong cash offer can mean getting the home of your dreams - rather than losing out on yet another home,” explains Houwzer CEO Mike Maher.
Although not every buyer has the ability to pay in all cash, there are some programs on the market that can help buyers potentially make a "cash offer" without having cash.
3. Don’t Drop the Inspection Contingency - But Massage it a Little
According to Realtor’s data on last year’s home buyers, “the most common contingency that buyers waived was the appraisal contingency (28%) followed by the inspection contingency (25%).”
We’ve spoken to agents in the field and one thing is clear: buyers are facing immense pressure to give up important contingencies that protect their investment.
Even when you’re buying a new home, forgoing the inspection contingency can be dicey. Though problems are less likely to be super pricy to fix, there are often small installation issues that need to be addressed before the home is ready for move-in. And if you’re buying an older home, you can really be rolling the dice on what you’re getting into. Waiving the inspection only feels reasonable when you think nothing is wrong with the house. But if you move in and the roof caves in due to a persistent unaddressed leak, you might feel differently.
“I will never, ever recommend waiving an inspection no matter the house,” advises Lisa Armellino, a buyer agent for the Philadelphia suburbs. “I don't think many people are considering that when inspections are waived, it leaves all of the involved parties open to post-settlement litigation... It's always the buyer's choice but in my mind, waiving an inspection is not a wise decision.”
Rather than completely waiving the inspection, consider having your Realtor write up the inspection contingency as “as-is, with the right to terminate.”
What this means is that regardless of the outcome of the inspection, you won’t be asking the seller to lower the home price or take care of repairs. That will be on you. However, the contingency still allows you to completely back out if the inspection reveals issues that are more costly or extensive than you anticipated.
This helps assuage the sellers that you won’t try to nickel and dime them after the inspection - you’ll only be backing out if there are truly significant issues. Sellers know that most buyers will be reluctant to back out in this crazy market unless there's something really wrong.
4. Waive Financial Contingency
Most homebuyers buying a home with a loan will have a financial contingency in place. The financial contingency allows buyers to cancel the home purchase with no penalties if they’re unable to secure a mortgage. “No penalties” means that the buyer will receive their earnest money deposit back as well.
According to data from Redfin collected from July 2020 to February 2021, buyers who waived their financial contingency were 66% more likely to win their home - making it the second most effective strategy behind an all-cash offer. Granted, this data was collected prior to the 2022 spring market, so sentiment may have already shifted in response to an incredibly hot market.
However, it’s easy to see why this strategy will likely remain popular with sellers - it means the buyers really are “all in” and if the sale does happen to fall through, sellers will at least receive something for their trouble (an earnest money deposit is typically anywhere from 1% to 3% of the home’s purchase price - so for a $400,000 home, you’d be looking at at least $4,000).
This approach comes with risk, of course, because if the loan falls though you may lose a fair amount of money - and that’s money you can’t take to the next home. If you don’t anticipate any issues with the mortgage/appraisal/etc., though, it might be worth the gamble if it means getting into a home.
Buying a House in a Seller's Market is Difficult, but Doable
The sky is still dark, but there's hope on the horizon for home buyers trying to land their first (or second, or third) home.
If you approach this competitive market with the right attitude, getting a home is not impossible - it's just going to take some flexibility and patience.
“Getting outbid in this market - that’s just something that’s going to happen. You have to set the expectations going into it. As long as you’re patient and you have a plan, the right house is going come along," advises Orlando-based buyer agent Jeffrey Colom Ortiz. "You hear horror stories all the time, but you also hear about the clients that get their home with the first offer, maybe the second offer. It’s all about timing.”
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