09/30/2021 | Press release | Archived content
You've likely heard the horror stories : Hopeful homebuyers across the country are getting drawn into intense bidding wars that drive up prices and leave them disheartened.
If you're a buyer in this red-hot seller's market, how can you figure out how much to offer so you can snag your dream home without overpaying? A lot of factors go into coming up with your offer (not just the price), and most of those decisions can be made with the help of an experienced real estate agent.
And while sellers might have the advantage in the market right now, that won't always be the case. Here's how to come up with an offer, no matter what type of market you're buying in.
A Seller's Market vs. a Buyers Market
What Is a Seller's Market?
"A seller's market essentially means that there are too many buyers, and not enough homes," says Quen Williams, a realtor in Austin, Texas. "Sellers have leverage in negotiation," she explains.
This means that buyers are competing with each other, while sellers hold a lot of power to choose the offer that works best for them.
What Is a Buyer's Market?
"A buyer's market is when there is way too much inventory out there and buyers have lots of options to choose from," says Phillip Salem, a licensed real estate salesperson at Compass. "The buyer has the upper hand in the situation," he says.
Because sellers aren't receiving as much interest in their homes in a buyer's market, they might be more willing to negotiate. This could mean taking a lower price, or being more flexible on other parts of the deal, such as working with the buyer's timeline or paying for some or all of the closing costs.
How to Bid in a Seller's Market
Coming up with a bid in a seller's market is a fast-paced, potentially stressful process. But here's how it should go:
How to Bid in a Buyers Market
In a buyer's market, the power dynamic is the exact opposite: Buyers have the leverage and sellers are more willing to negotiate. You'll still want to start by getting your finances, pre-approval and boundaries in order. When you're ready to start house shopping, you can take these steps:
Consider the Seller's Point of View
In both types of markets, you should think about what the seller's priorities are. Sure, they may want the best price for their home, but they may also feel sentimental about selling and want to see it go into caring hands. Or, they might be in a rush to sell and be willing to take a low price for the sake of speed.
Pro Tip
The price isn't the only part of your offer. Work with your agent to make other aspects of your offer attractive, too.
Just don't get too carried away with this, experts warn. "I always say, if my buyer is a little unrealistic, put yourself in the seller's shoes," Salem says.
If your offer is too low, for example, a seller might decline to respond to it and take you out of the running for the home. Or, if your offer has too many strings attached, or you need too much time to close, that could also turn off a potential seller.
"The buyer always wants to save as much money as possible while trying to win the offer, but sometimes they get a little lost in what they want and not what the sellers want," Williams says.
Only Offer What You Can Afford
It's easy to get swept up in the emotions of home buying, no matter the type of market. Remember, however, that you're on the hook for paying for this house, so don't offer more than you can realistically afford.
"If you overpay, that can actually be quite difficult for you for a number of years," Melcher says.
A lender can help you understand what you can afford (and how much they're willing to lend you). You can also use a mortgage calculator to see how much your monthly payments would be with a specific loan value and interest rate. One good rule of thumb: Your mortgage payment shouldn't be more than 28% of your monthly pre-tax income, and 36% of your total debt.