Buying a home is an exciting time in life, whether you’re just beginning your homeownership journey, finally ready to retire, or anywhere in between. It’s a chance to embark on a new chapter. The chance to curate your own space where laughs are shared, memories are made, and families will grow. Buying a home in 2022, however, might prove to be quite the challenge as the demand for homes steadily rises and the inventory of available homes decreases – especially if it’s your first time buying in a seller’s market. But don’t be discouraged!
In this blog, we will discuss two words most prospective home buyers never want to hear from their realtor: “seller’s market”. Luckily, a seller’s market is not as scary as you might think, and it certainly doesn’t make buying a home in 2022 impossible.
23 Legal is here with the secret formula to help find your new home while everyone else says the cards are stacked against you. Before we talk about the secret to buying a home in a seller’s market, let’s define what a seller’s market is and talk about what that means for your home buying experience.
What is a Seller’s Market?
A seller’s market occurs when the demand for homes exceeds the supply of homes available. Sellers are at an advantage when there are fewer homes available. In a seller’s market, homes sell faster, and buyers must compete with each other in order to score a property.
These market conditions often make buyers willing to spend more on a home than they would otherwise. Therefore, sellers can raise their asking prices. The increased demand means that buyers rarely have the leverage to negotiate and are more willing to accept properties as-is. When real estate inventory is very low, it can often lead to bidding wars. During bidding wars, buyers will make competing offers and drive up the price, typically above what the seller initially asked for.
Let’s take a look at some of the statistics that are telltale signs that the US is currently in a seller’s market…
- The average price of newly listed homes has climbed 13.5%. The prices for newly listed homes have risen 3.5% since March 2021 and 26.5% since March 2020. Increased demand in homes has resulted in an 18.9% decrease in the national inventory of active listings. This indicates that the number of people looking for homes is rising while the number of homes that are available is decreasing.
- Interest rates climbed to 4.17% in March 2022. At the beginning of the COVID-19 pandemic, the Federal Reserve cut the federal funds rate, keeping interest hovering around 3% in 2020 and 2021. Since January 2022, the interest rates on 30 year fixed rate mortgages have increased to 3.5% By March 2021, the rates were at 4.17%. This is still lower mortgage rates in 2018 and 2019, which explains why demand is high – more people have been able to afford homes based on low interest rates.
- Home buying power increased 21% in 2021, but could decline in 2022. While house prices have increased, incomes have also increased with inflation. Interest rates are at a low as well. When incomes are high and interest rates are low, buyers can get more value for their money, even if the nominal price of houses has increased significantly. Between 2020 and 2021, home buying power actually increased 21%, but due to the increase of mortgage rates by about 1%, we could start to see a decrease in home buying power.
- Houses are only on the market for 38 days. As of March 2022, the average number of days houses are on the market is only 38. In March of last year, houses stayed on the market for about 49 days. Usually houses sell faster during the spring and summer, represented by the slight bump between November 2021 and January 2022 that brought the total days on market to 61. However, in February and March 2022, a decrease in days on market begins as we get toward the spring and summer months. This real estate statistic confirms greater demand and competition for houses post-pandemic, and buyers are snapping them up as quickly as possible.
- The supply of existing homes dropped to 1.6 months. The monthly supply of existing homes measures how many months the current inventory of houses for sale would last. At the current rate of sale, no new houses were built. For most of the 2010s, the monthly house supply was around four to five months, with variations. In 2021, it dropped to an average of 2.3 months, with an extremely low point of 1.7 months in December 2021. In January 2022, the monthly supply dropped to 1.6 months, but began to climb in February 2022 to 1.7 months. This real estate statistic shows high demand and low supply of houses, making it hard to find houses and driving prices up on the available houses.
These statistics illustrate that the US is currently in an aggressive seller’s market. When you try to buy a home, you may find out that 30 other people have made offers on the same home. It’s likely that you will be outbid or outmaneuvered by other potential buyers in the market. This next section will cover ways to stand out in a seller’s market so you can accomplish your home buying goals!
7 Secrets to Buying a Home in a Seller’s Market
Buying a home in a seller’s market may seem like an uphill battle. With these helpful secrets (it’s okay if you share them) you and your family will be well on your way to closing on a new home. Let’s dive in…
- Determine whether or not you’re in a seller’s market. This can help you know for sure if you’re in a seller’s market so you can adapt your home buying strategy to it. A real estate agent can help with a few easy calculations. One is to use a market absorption rate calculator, which tells you how many months it would take to sell all the remaining homes, or inventory, for sale in a given area. A low number means you’re in a seller’s market.
- Start with your best offer. In a strong seller’s market, it does not make sense to lowball the seller. Make your best offer first in order to prevent competitive interest. Chances are the seller has multiple offers on the table, don’t let your offer be ignored because you want to price low!
- Prepare for a bidding war. If an offer on the listing price isn’t successful, still make your best offer, but be prepared for it not to be your final offer. Real estate experts recommend only looking at houses up to 89% of your maximum budget. This gives you extra wiggle room, should a bidding war ensue.
- Don’t propose a counter offer. Counter offers don’t really exist in a seller’s market. Owners will be seeing anywhere from 12-30 offers all at once. Put your best foot forward or you’ll get lost in the crowd!
- Throw in cash to sweeten the deal. Show the seller how serious you are by offering earnest money. Earnest money is a deposit made to the seller to illustrate the buyer’s good faith. Be as competitive as possible within your budget when it comes to offering earnest money.
- Send the seller a sentimental message. Put yourself in the shoes of the seller. Many sellers are sentimental about their home. After all, it’s likely they spent many years in this home building memories. Record a video or write a compassionate letter to the owner of the home. Introduce yourself and explain why you love their home and how you plan to use it for your future. Appeal to their sense of nostalgia and you will be competing for the home before the deal has even started!
- Partner with a trustworthy real estate attorney. With the right real estate attorney in your corner, you can rest easy knowing that the legal steps involved in buying a home will be handled by a professional who is acting in your best interests. We highly advise against trying to go about major real estate transactions like this on your own!
Finding the Right Real Estate Lawyer
Let’s talk about the differences between a real estate agent and a real estate attorney. For starters, there are a lot of misconceptions about real estate lawyers. Real estate agents are professional researchers who will scour through listings, looking for the best home that fits your budget and your preferences. They are well connected and can help you find the right mortgage broker.
On the other hand, a real estate lawyer can assist you with navigating the legal landscape of buying or selling a property. Real estate laws differ from state to state so it’s important to have a knowledgeable real estate attorney on your side. A great real estate attorney has all the connections of a real estate agent with the added benefit of being a legal expert who is authorized to give you professional counsel. Real estate attorneys can educate you on the type of home insurance you need. Real estate lawyers like Ben Weaver can help with all of the legal transactions that come with home buying. Attorney Ben Weaver is here to help clients hoping to buy a home by:
- Reviewing contracts
- Reviewing home inspection reports
- Examining HOA rules
- Order an FOIA report to ensure there are no hidden building or permit issues
- Inspecting the title work and the closing documents
- Attending the closing
- Ensuring the deed is recorded properly
Here’s what a client had to say about working with Ben Weaver to buy their new home…
“We worked with Ben this past summer in buying our new home. He is incredibly responsive, always willing to answer questions, and gets the work done very quickly. He gave us great advice when negotiating the various contracts we went through. If we ever need attorney help for future homes, we will definitely work with Ben again. Thank you!”
– Client Testimonial
If it’s time for you to buy a home, don’t let current events discourage you from doing so! When you implement the best practices from this blog and team up with a trusted real estate attorney like Ben Weaver, closing on your new home is made much easier.
Are you trying to buy a home in this seller’s market? Feeling like it’s an impossible task?
Not with us on your team! 23 Legal can help you negotiate to get the best deals, close the sale smoothly, and plan your estate!
Contact us today: (847) 447-6604
Why Choose 23 Legal
23 Legal offers Real Estate and Estate Planning legal services to individuals, families, community associations and small business owners throughout Chicagoland. We know how intimidating “the law” can be. In fact, when most people think of law offices, they think of stuffy leather chairs, huge wooden desks and pompous lawyers who charge outrageous fees. That’s not us! We believe in 1-to-1; the same lawyer should work with you all the way through. Whether you have an estate planning issue, family trust concern, or you have a legal problem in regard to a new home, business, real estate or remodel, you need a lawyer who cares. That’s where Ben comes in! We are great listeners; more than that, we are lawyers who believe that our clients always come first.