Jacqueline Kyo Thomas
It's a seller's market and you're tasked with helping your buyer client find the perfect home at the lowest price. But in a landscape ravaged with bidding wars and unrealistic buyer clients, it seems like a never-ending battle to get from house hunting to closing.
In 2020, COVID-19 shook up the real estate market. Almost overnight, the inventory dwindled as some sellers took their properties off of the market. However, that did not stop the demand for property. In fact, the pandemic started a mass exodus from major cities and into the suburbs or even the countryside. And even though we’re now seeing light at the end of the tunnel, a relatively small inventory and a large pool of buyers mean that it’s still a seller’s market. And home sellers are charging a premium.
In spite of all of this, it’s a great time to buy. With interest rates at an all-time low, savvy buyers can confidently purchase. After all, it makes sense to buy now.
But there are definite challenges.
That’s where you come in.
As an expert in real estate, your clients will look to you to give them an advantage in buying their dream property during this time. And you’ve got to have the answers.
Here’s the good news: Even in a competitive market where multiple buyers are vying over the same piece of property, you can help your clients win.
In this post, we’ll share tips on how to support and advise your buyer clients during their journey to homeownership. Let’s get started.
Advise Your Buyer Clients to Get Pre-Approved
It’s crucial that your clients get pre-approved before house hunting in a seller’s market.
Pre-approval is different from pre-qualification. Getting pre-qualified means that your client has spoken with a lender and received a rough estimate of how much they can afford based on a series of questions they’ve answered.
Pre-approval weighs considerably more than pre-qualification. With a pre-approval, your client has met with a lender who scrutinized their financial identity to determine their creditworthiness and ability to pay back their debt. The lender looks at credit scores, bank statements, and tax returns to come up with an amount that they are willing to loan.
Before working with you, your client should obtain a preapproval letter from a lender for a specific amount. To reduce frustration for all involved parties (you, your client, the home seller, and the seller’s agent), insist on getting this letter right away.
A pre-approval letter also helps you confidently create a list of homes that your client can afford.
Also advise your clients to not make any major purchases that may noticeably dent their finances or impact their credit, such as financing a vehicle. It may seem like common sense to you, but some people genuinely don’t know or think about it.
Some sellers will ask for this letter before proceeding, but some may not. However, even when they don’t, you should offer it.
Presenting a seller with a pre-approval letter will give your client an advantage over other buyers who may not have this financial document. It shows the seller that your client is ready to move quickly, which is what every seller wants to hear. Not having this letter gives the unintended impression that your client isn’t serious.
Remember that sellers are also taking a risk when they enter an agreement with your client. If they accept one offer, they’re effectively turning down other offers. And those other buyers will move on. But, if the deal doesn’t close, the seller is back at square one, and a little worse for the wear.
Push Your Buyer Clients to Act Right Away
In a competitive, seller’s market, your buyer client shouldn’t take too long to mull over the purchase. And it’s your job to gently nudge them to act.
Analysis paralysis is a common condition, especially for first time home buyers. But, it can become deadly if your client waits too long. If someone else comes along and bids on the property, then it could easily slip away.
Advise your clients to make two lists, one for their non-negotiables and another for their nice-to-haves. Do your best to find homes that check off their non-negotiables first and their nice-to-haves second. Doing both may prove difficult in a seller’s market.
Clients often fuse together non-negotiables with nice-to-haves. You’ll need to remind your clients from time to time that you’re giving them a home that meets their non-negotiables. And also remind them that most desirable properties have multiple offers – someone else may buy it while they’re still thinking. Either they need to put in an offer right away or completely forget about it and move on to another property. A little tough love is always needed in a seller’s market.
Also educate your clients on current pricing trends so that they can bid with confidence.
Discover What The Sellers Want
In addition to knowing what your buyer clients, you should also know what the seller wants. Sometimes, sellers have special wishes, such as additional time to move out of the home. If your client is accomodating, it could give them an advantage over other buyers.
Fortunately, it’s easy to find out what a seller wants—simply ask the seller’s agent what their client wants to see in an offer, and then use that to your advantage.
Tell Your Clients to Make the Best Offer the First Time
Starting low is a great negotiation tactic, but in a seller’s market, it usually backfires. If a seller receives multiple offers at or above their asking, why would they choose to go with a lower one? Offering low is not the right strategy unless you know that the property is overpriced or you’re able to meet certain, special requests that the seller may have (see the above point).
Advise your client to start strong, but don’t go overboard. If they can’t afford it, they shouldn’t go after it. You can also advise your clients to include an escalation clause in their offer so that they can continue to outbid competing offers up to their maximum budget. This protects your client from overpaying but also gives them a competitive edge.
Be Prepared for Bidding War
Be prepared. As mentioned above, your first offer may not be your final offer.
Bidding wars can happen at any time, but they're almost guaranteed to happen in a seller's market when the inventory is lean and the property is desirable.
To compete against other homes on the market and attract a larger pool of buyers, sellers often list with an unbelievably low price. Then, they use a bidding war to drive up the price.
Prepare your client and yourself by going in with your best offer and setting an escalation clause. Also consider starting your property search below your client’s max budget (while still ticking off their non-negotiables). This way, if the price is driven up due to a bidding war, your client can still compete.
Teach Your Clients How to Make a Clean Offer
In a seller’s market, the most attractive offer is a clean one. Advise your clients not to include too many contingencies in their offer.
A contingency is a clause added to an offer that the seller must meet. If this condition is not met, then the deal is potentially broken and the buyer is able to walk away from the purchase without financial injury, i.e. they don’t forfeit their earnest money (more on this next).
Contingencies protect buyers from financial risk. Common contingencies include:
- Appraisal This contingency protects a client if the home’s appraised value is lower than the sales price
- Financing This contingency gives your client the time to apply for a loan and receive funding
- Home sale This gives your our client the option to only purchase the home after successfully selling their current home
- Inspection This protects your client if a home inspector uncovers a huge problem, such as termites or extensive water damage
- Title This contingency allows your client to walk away if the title isn’t free and clear
While adding a contingency clause is a smart move for a buyer, it also makes their offer less attractive to sellers. Sellers like clean offers because it’s less risky for them. Even if the buyer walks away, the seller can still have the consolation prize of earnest money.
In a competitive market, advise your clients to go as clean as possible with their offers. In other words, they should remove contingencies and be more thorough when walking through the home that they’re interested in buying.
Ask Them to Put Down More Earnest Money
Earnest money is a good faith deposit that the buyer adds to their offer. It’s usually an amount that represents between 1% to 3% of the offer. Earnest money is held in escrow until closing, at which time it can either be applied to closing costs or to the down payment.
Some sellers require earnest money. However, even when it’s not required, offering earnest money is still a smart idea. It proves that your buyer client is serious. If the deal doesn’t go through, due to financing or some other cause, the seller is protected.
Final Thoughts
Even though you're in a seller's market, your buyer clients can still get what they want. Use the above tips to line up the odds in your client’s favor.
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