Buying in a Seller’s Market: Step-by-Step
Halifax is currently experiencing one of the hottest seller’s markets in the country. Resale home prices in Halifax/Dartmouth are up 19% year-over-year, and inventory remains at a record low. As a buyer in a competitive market, it’s important to be prepared and to fully understand the homebuying process in order to have the best probability of success. So far in 2020, our brokerage has sold nearly $10 million in residential real estate to our buyer clients. We understand what it takes to put forth a competitive offer, and to get it accepted.
Step 1: Get Pre-Approved for a Mortgage
It’s important to visit a mortgage broker before starting your home search, as they will let you know how much you can afford, what your interest rate will be and what your monthly mortgage payments will look like. Getting a pre-approval can help you narrow your search down to a specific home type, size or neighbourhood. It’s important to note that this is not a guarantee of final approval for a mortgage. Once you find the home you want to buy, the property still has to be evaluated to ensure the price and condition of the home are acceptable to your lender.
Step 2: Narrow Your Search
While a mortgage broker can help you narrow down your search in terms of what you can afford, it’s important to consider other factors as well. Three of the most common search criteria include location, size, and special features.
- Location: Do you have a preferred neighbourhood? Somewhere close to work, or in a particular school district? Do you want to be able to walk or bike to shops and restaurants, or would you prefer to live in a more suburban or rural environment with added privacy?
- Size: How many bedrooms and bathrooms do you need? Do you need a space to work from home, storage space, or a garage?
- Special Features: What other features are required? Perhaps a heat pump or electric heating system? Updated kitchen, large backyard, or a secondary suite to offset the mortgage?
It’s important to note that since inventory is so low, it may be necessary to compromise on some criteria – almost no house will be perfect! It’s often helpful to rank criteria from most to least important – which are features are necessary and which are nice-to-have?
Step 3: Put Together a Strategic Offer
When desirable properties go live on the MLS in a hot seller’s market, buyers need to move quickly. The seller will typically set a limited timeframe to accommodate all viewings (usually between 3-4 days, over a weekend). Oftentimes, they will also set a due date for all offers to be submitted. If the property is priced strategically, this will almost always result in competing offers, thus driving the sale price above the asking price. In a situation where there are competing offers, there are a few ways to make your offer more attractive:
- A quick condition period. After an offer is accepted, the buyer has a timeframe called the condition period where they are able to carry out their due diligence prior to the deal being finalized. The contract only becomes final once all conditions are met. In a balanced market, this timeframe is usually 2-3 weeks. In a competitive seller’s market, the timeframe should be between 1 week and 10 days (or less). The quicker the better! During the condition period, the buyer should schedule a home inspection, secure financing, acquire home insurance, and have a lawyer review the agreement and condo board documents (if applicable). If the house has a well, the buyer should also have a water flow and quality test done.
- Price. It’s important to do market research to determine an appropriate offer. Reviewing comparable sold properties, and the average price per square foot for the neighbourhood is a helpful starting point. In a situation where there are competing offers, it’s important to put your best foot forward. If the property goes to another buyer, you don’t want to have any regrets about the number put forth.
- Closing date. This is the date that you get your keys and take legal possession. If you are flexible with closing, it’s always a good idea to tailor this date to the seller’s preference.
Step 4: Navigate Conditions and Finalize the Deal
It takes a team to buy a property, and this is where that team comes in. To satisfy a tight condition period, it’s important to have a qualified group of professionals assisting with your due diligence in a timely manner. This includes your realtor, mortgage broker, insurance broker or provider, inspector, and lawyer. While there may not be much room to negotiate in a seller’s market (especially if there were other offers on the table), if anything major is found during the inspection, this is the time for your realtor to re-negotiate with the seller before the deal is final. After all conditions are met and the contract is finalized, the lawyers will make adjustments (property taxes, fuel, etc.) to calculate closing costs. Closing day is when you finally take legal possession of your new home! It’s when you pay the down payment, closing costs, and receive your keys.
To summarize, while buying in a seller’s market can be stressful, and at times discouraging, it’s important keep your eye on the prize. Be prepared to move quickly, be prepared to offer above the asking price, and don’t get emotionally attached before the offer is accepted. When you secure your dream home, the stress will be all worth it in the end!