This strategy is not about negotiating the best price; it is about beating out the competition and buying the home. It may be difficult to understand until you have lost a few homes to better offers, but the reality of the situation is that when there are few homes on the market, the competition heats up, and different tactics are necessary.
Sales in December were annualized at 6.76 million, a 22.2% increase year over year according to the National Association of Realtors®. The median sales price is $309,800, which is up 12.9% from the previous year. Inventory for December fell to 1.9 months' supply from 3.0 months' supply in December of 2019. Six months inventory is considered a balanced market.
Things that work in a buyer's market will not work in a seller's market. The shortage of available homes for sale has led to shorter market times and multiple offers that have sales prices above the listing price. Buyers, especially in entry to mid-level priced ranges, may have lost out numerous times to buy a home.
Buyers must be strategic if they want to find a home successfully. There are some things that are essential to just be in the game.
Unless you are paying cash and have adequate proof of funds, you need to get pre-approved. Realtors® and financial advisors have been saying this for decades, but it is critical now. There are plenty of reasons that benefit the buyer, but most importantly, it shows that a buyer is serious and has gone through the effort to have a lender run his credit and verify his income, expenses, employment, and credit.
If the home is fresh on the market, in a desired location and price range, you need to assume there will be competing offers, and you may never even get a counteroffer from the seller. You need to consider making your highest and best offer first as if you will not get a second chance. This is more difficult for some people than others because of their bargaining nature.
Earnest money that accompanies a contract shows that the buyer is acting in good faith. The amount that may be customary may not be enough in a competing market. Consider two or three times what might be expected. Talk to your agent about what would make an impression on the seller.
While contingencies will protect your earnest money from specific concerns like loan approval and inspections, the seller will look at them as ways that the buyer can get out of the contract, and they'll need to put the home back on the market. If a seller is presented with multiple offers, they might be prone to accept one with the least contingencies, especially if the prices are comparable.
There is usually a period connected to the different contingencies that are allowed to complete them. By shortening these times as much as possible limits the time the seller might feel they are in limbo.
If you have the flexibility, you might express your willingness to move the closing and/or possession dates to accommodate the seller's schedule. This could be an essential factor in your favor and could be done in a verbal statement conveyed from your agent to the listing agent.
These are things buyers should consider and discuss with their agent before finding the home they want to buy. While you are formulating your position, another offer may be accepted before you even make yours.