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As Mario Castellitto shopped for homes during the pandemic, he realized he had stepped into a frenzy of bidding wars and soaring property prices. Before the attorney landed a home in Connecticut, he made generous offers on several properties, only to lose out to more aggressive bidders.
“It was unbelievably frustrating,” Castellitto says. “A house would come on the market in the morning, and by noon it was gone.” He persevered, eventually locking in a deal by offering $16,000 over the seller’s asking price.
This experience has become common during the post-pandemic housing market. Too many buyers are chasing too little inventory. As a result, buyers are offering to pay more than list prices. Those with the means can dangle all-cash bids and even skip appraisals and inspections. “It’s just bananas,” says Andy Sachs, an agent at Keller Williams in Newtown, Connecticut, and Castellitto’s agent during his house hunt.
The pandemic has created an imbalanced housing market in much of the country, reducing supply and goosing demand. What’s more, mortgage rates plunged to record lows for a time, spurring buyers to bid up prices even more.
Buyers face withering competition
As a result of those forces, prices have risen sharply. Even with mortgage rates now ticking back up, the inventory shortage is a nationwide trend. Most housing markets are experiencing strong demand for a limited supply of homes. Realtors from Rhode Island to Texas to California report bidding wars and sight-unseen offers.
For would-be buyers, scoring a home in this market isn’t just a matter of paying a bit more. The shortage of supply has added a new degree of difficulty and drama.
Desirable properties are being mobbed by qualified buyers, says Donnell Williams, owner of Destiny Realty in Morristown, New Jersey. “There’s 40 people in line. It’s unbelievable,” says Williams, who is also president of the National Association of Real Estate Brokers.
Given that reality, buyers need to put on their game faces. And home shoppers who need mortgages can find themselves at a disadvantage. “Now you’re competing with cash buyers,” Williams says. “You’re competing with people who say, ‘I waive the appraisal.’”
Have a great real estate agent on your side
To navigate a market this tricky, expert guidance is more important than ever. You want to partner with someone who has seen it all before, who knows how to handle challenging circumstances, and who will fight for your interests. Hiring an experienced buyer’s agent — one who can be nimble and quick on their feet — is a must.
Here are six strategies for successfully buying in an intense seller’s market:
- Move fast
- Go through full mortgage underwriting before shopping
- Make an aggressive offer
- But don’t overpay
- Make an emotional connection with the seller
- Be willing to wait
1. Move fast
Inventory shortages mean homes are selling quickly. Sachs tells buyers to prepare to tour properties the moment they hit the market. “We advise buyers to get into showings the first day if possible,” he says. “It’s probably not going to last long.”
In addition, with so many buyers forgoing appraisals and inspections, now is not the time to haggle over minor repairs and other small sticking points. “You want to show the seller how excited you are about the house, without hemming and hawing and asking a million questions,” Sachs says. The need for speed means many buyers also are making offers before even setting foot inside a property.
2. Go through full mortgage underwriting before shopping
In more sedate times, a preapproval letter from a lender satisfies most sellers. These days, preapproval is no guarantee of having your offer accepted.
Sellers looking at multiple offers will pick the surest thing. Sachs’ advice? Go well beyond a preapproval letter. “If you need a mortgage, make sure you’ve gone through full underwriting,” he says. “Then, all that’s left is for the appraisal to come in.”
A preapproval letter is based on a preliminary check of your credit score, but it’s not the final say. “Being fully underwritten, with only an appraisal to complete the process, is sometimes compared to being as good as a cash buyer,” Sachs says.
3. Make an aggressive offer
In normal markets, a home’s asking price acts as a ceiling. It’s a number that reflects sellers’ aspirations, but not necessarily the reality of the market.
In this market, however, the asking price is often the floor. Castellitto says he lost out on several Connecticut homes that sold for well above asking price.
“You have to put your best foot forward immediately,” Sachs says. “You should go in at or above market. If you have the ability to offer cash, do it.” A cash offer usually means fewer contingencies around appraisals, inspections and continued employment, so sellers look at those bids favorably.
4. But don’t overpay
In a market characterized by sharp-elbowed buyers, paying too much for a house is a real threat. “When you see multiple people offering more than the asking price, that fear of missing out kicks in,” Castellitto says. “As a buyer, you’ve got to be careful. You can get caught up in that and pay more than the house is worth. I walked away from several houses because they just weren’t worth it.”
Castellitto had been watching Connecticut home prices for more than a year before he bought. Up until the pandemic hit, the state was a buyer’s market. “Homes would sit on the market for a year,” he says. “You would see them come on the market at a certain price, and then they would just drop, drop, drop.”
That’s no longer the case, of course, but the housing market’s recent history gave Castellitto some perspective. While housing economists agree that a crash in home values is unlikely, the Great Recession serves as a not-too-distant reminder of the dangers of overpaying.
For sellers who need financing, the home appraisal can act as a guard rail against paying too much. While appraisers understand that values are spiking, they are unlikely to assign a super-aggressive value to a home. If the appraisal comes up short and you still want the home, you’ll have to add more cash to the deal to make up the difference.
5. Make an emotional connection with the seller
This isn’t always possible, but it’s worth a shot. If Sachs thinks a home’s sellers will like the prospective buyers, he encourages the sellers to stay home for the showing. The strategy: If the seller establishes a connection with the bidder, that offer might stand out from other similar offers.
“Residential real estate is equal parts emotional and financial,” he says. “If you can apply the emotional part, and the sellers can imagine you living in their home — where they raised their kids and have great memories — that can give you an advantage.”
In past sellers’ markets, buyers’ agents have tried to make their clients stand out with “love letters” — personal appeals from bidder to seller. This time around, Sachs says, his local real estate board has discouraged the practice.
In fact, the National Association of Realtors now prohibits its members from delivering buyer love letters to sellers. It even advises agents against reading them at all. This is due to potential fair housing implications if a buyer reveals personal information in the letter that influences the seller to accept or reject the offer.
6. Be willing to wait
The intensity of this seller’s market caught nearly everyone by surprise. If you’d prefer a more leisurely pace, it could make sense to hit the pause button. “Wait out the market,” Castellitto says. “That’s what I would do.”
Predicting the direction of the housing market is a fool’s errand, of course, but it’s possible that the housing market will simmer down relatively soon.
Waiting comes with its own downside, however: Home values soared 20 percent nationwide from February 2021 to February 2022, according to real estate data firm CoreLogic. If that trend continues, prices will move even higher while you wait.