Why Every Buyer In A Sellers’ Market is Absolutely Amazed To Know This
Mortgage Banker
Richard Blair
Published on September 17, 2021
Mortgage Broker Versus Mortgage Banker

Why Every Buyer In A Sellers’ Market is Absolutely Amazed To Know This

Did you know that different types of real estate markets will greatly affect First Time Homebuyers ?

If you are starting your home buying journey, or have made several home offers that have not been accepted, it is important to understand what type of market you are competing in for available homes. Without this knowledge you will continue to experience frustration and waste  months of home searching without an accepted offer. Not only is this frustrating, but it is also costing you time, money and loss of opportunity.

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Knowing this One Thing can give you an advantage over other pre-qualified home buyers.

Understanding what type of real estate market you are trying to buy a home in is important. The market is hyper-local- it can be different depending upon the state you live. This is important because the type of market will determine the strategy you should for your home buying journey. It will also affect how you pre-qualify for a home loan, what type of home loan preapproval is best for that market, and choosing the best mortgage lender. You will also need to understand what is the best home loan that will give you the highest percentage of getting your offer accepted by the Seller.

What are the 3 types of home buying markets?

A home buying market is really defined by the number of months of housing supply available for sale in your market. According to the National Association of Realtors here are the 3 main types of home buying markets:

  • Buyer’s Market – More than 7 months of housing inventory
  • Neutral Market– 6-7 months of housing inventory
  • Sellers’ Market- Less than 6 months of housing inventory
Does the Type of Housing market affect the price of homes for home buyers?

The answer is Yes.

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Each type of housing market will affect how much you will pay in your market for a home. Home prices will rise and fall with the type of market because of the amount of home inventory for sale.

Knowing how this works and the trend for your local market can save you money. Call a mortgage broker or mortgage lender that is local to your area with experience and a trusted reputation to discuss the market trends. Check Google Business or other social media testimonials to find the best mortgage lender to meet your needs.

Will you be looking for a home in a Sellers’ market where home prices will be higher or is waiting a month or two better because the market is trending to a Neutral , or Buyers;’ Market.

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The Impact of Inventory on Housing Prices -Understanding the housing market helps develop your home buying strategy .

 

 

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The graph shows how the price you pay for a home will depend on the type of market.

Sellers’ Market– Home prices will go up – meaning home values are appreciating quickly. This leads to multiple offers on homes from home buyers. Lots of competition for homes. Buyers are submitting offers for more than the list price. Appraisals of homes are coming in lower than the sale price. Sellers are not willing to offer a buyer any help with closing costs.

Neutral Market– Home prices remain relatively stable. This means the market is in equilibrium. There is not too many homes listed for sale based on the number of home buyers searching for homes. You are less likely to experience multiple offers from several different buyers at one time or Buyers offering to pay more than the home is listed for.

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Buyers’ Market: Home prices will go down. Rather than appreciation of values we have depreciation. Not a good time to list your home for sale because the inventory of homes for sale is high and there is not as many home buyers out searching for homes. In this market you will see homes selling for less than list price and sellers are willing to provide a credit for closing costs.

What type of housing market are we in Today?

The National Association of Realtors estimates a 2.6- month inventory of homes for sale which is historically considered a Sellers’ Market.

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Low inventory together with a higher buyer demand for homes means homes will sell quicker and for more money. It also means sellers can negotiate other favorable sales terms -like staying in the home for free for several weeks after closing. Buyers are unable to get any seller help, called concessions, to help pay for closing costs. This also leads to bidding wars that drive up home prices even further. Typically winning a home offer will take more time and patience.

How to win the offer by choosing the best home loan for a sellers’ market?

With competition from other home buyers that are prequalified from a a mortgage broker or mortgage lender you need to make your offer stand out from the crowd.

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Unfortunately, in a sellers’ market many sellers steer away from buyers that are pre-approved with a VA loan. This is most likely because of the seller not really understanding how the VA hone loan works.

Home buyers pre-approved a FHA home loan with 3.5% down payment may also be passed over by a buyer with a conventional home loan pre-approval. (more information about qualifying for a FHA home loan)  Sellers in a low inventory market may prefer home buyers with a larger down payment thinking that the loan is more likely to close. Getting a strong pre-approval letter from the mortgage lender can really help.

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So, what is the best home loan that will give you the best chance of having your offer accepted?  You need to work with your local mortgage loan originator and ask for a Home Loan Analysis that will show you all available options. If you have a low down payment saved, maybe a conventional 3% down payment program will work better than a FHA program in your local market. Choosing the right program for your local market can make or break your chances of owning a home.    

Housing Wire discussed this issue of choosing the best home loan for the type of market. There were many comments from markets across the United States that believed sellers were discriminating against home buyers pre-qualified for FHA and VA home loans.

These are the hottest housing markets in America

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Why you have to compete with other home buyers and big tech companies that are cash buyers.

Not only are we in a Sellers’ market where you have to compete with other buyers that are prequalified for a home loan, but now there is also competition from I-Buyers.  There are now many Instant Buyers (“I-Buyers”) that offer cash and a quick close for sellers. Just a couple of these major companies you may have heard about are OpenDoor, Zillow Offers, and Redfin Now, but there are numerous others in this market.

Why would a seller accept less money from an I-Buyer than taking your offer with an FHA or VA home loan pre-approval from your mortgage lender?

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The reason is that sellers love CERTAINTY. The seller wants to avoid the the uncertainty of a sale falling through if the buyer cannot obtain mortgage financing. The seller’s biggest fear is that there could be a last minute hiccup in the buyer’s loan approval or maybe the appraised value comes in less than the purchase price. To many sellers they are willing to accept less money for this certainty- cash is king.

Cash sales recently accounted for 23% of all existing home sales– that is 1 out every 4 homes are now a cash deal. This is according to a study from the National Association of Realtors   

This means that you need to make your offer as safe as a cash offer. By working with your local mortgage broker or banker make sure you have a fully underwritten credit loan approval. It may only be subject to the appraisal, a title report and some minor conditions. This will give the seller certainty and allow you to close quickly.

 

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