The elements of a sellers’ market are easy to spot.
First, is that there are many more potential buyers than sellers. Real estate professionals refer to this as a “lack of inventory”. If you go to the supermarket looking for bok choy and they haven’t any, you’re not making stir-fry tonight. The supermarket, therefore, really tries to make sure it has enough bok choy for everyone.
The housing market is absolutely not like that. There is no central, controlling governance that will see inefficiencies and correct for them. There is little to no effort put towards any sort of central planning to meet the demands of population shifts. There are only individual homeowners and individual home-buyers.
While not nearly as volatile as the stock market, the housing market generally resembles a free market much more than it does a chain of supermarkets trying to maximize profit. Both buyers and sellers can find this frustrating, depending on which side of the bargain you find yourself.
Buyers’ markets are usually called something else: a downturn, a recession, a collapse–it takes a lot of misery to get sellers to put their homes on the market for very cheap, and it doesn’t happen much.
A Sellers’ Market
Sellers’ markets are much more common, at least these days and at least in a well-positioned market like the Hudson Valley.
One of the major attractions of the Hudson Valley is that it’s not crowded. “Not crowded” is another way of saying “not that many houses”. So when droves of buyers are interested in living here, they find themselves chasing the same properties that dozens of others are also chasing.
The market trains everyone what to expect in any given transaction. Current conditions have been training sellers to expect a higher price than they would have gotten last year; and that they can also expect to see their house sell for 100% of “asking price”–or more! This can be daunting, and even exhausting, for many buyers. Tales abound of those who lost a bidding war to a cash buyer. Or who “won” the bidding war after offering a premium and waiving inspections. If this is important news, there’s an equally important news item to report:
I have yet to hear anyone complain that they wish they had not bought the house.
Why is that? Well, it’s actually very simple: if you want a house, rising prices are bad. But once you’ve bought the property, rising prices are good. Therefore, few regrets.
How Can I Make this Work for Me?
The buyer today needs to be more well-prepared than ever before. In the Hudson area we had often seen buyers with ten percent down payments (or even less, if you’re obtaining a USDA, USVA or other lending product). Today we have joined most of the rest of the country in that you will probably need to come up with twenty percent down in order to get a loan. And while it’s true that interest-rates remain at historically low rates, getting financing is hardly the most difficult hurdle for buyers.
“Being prepared” means as much about mindset as anything else. The keys to obtaining a house in a seller’s market are much as in any competitive market: it requires both velocity and persistence. Velocity in the sense that the buyer needs to be prepared to see a property almost as soon as it comes on the market–yes, that means you may, if you live in New York City, need to come up during the week!–and then, once you see a place you want, you must be just as quick with your offer. Persistence means: you may need to repeat this process more than once before you get a place.
Preparation is not just about the proper frame of mind. It means having what’s called a “pre-approval letter” from a lender before you see the property. If you’re expecting to pay “all cash”, the equivalent document would be either a letter from your accountant or other “proof of funds” that will convince a seller that your transaction will complete if they accept your offer.
Next, assume that you will need to offer either close to or 100% of asking price–and perhaps more. Does this mean there are no properties you can get for less than asking price? It does not. There are always properties available where you can negotiate a better price. But many owners of the most desirable properties will not even consider negotiating–at least not in this sellers’ market.
Contingencies
Let’s say you’re prepared to offer 100% of “asking price”. The bad news is that others are ready to do the same. To make your offer more attractive, you will want to begin removing what are called “contingencies”. Of course the biggest “contingency” is that you get a mortgage–and if you’re not paying cash, you cannot remove this one (important note: this is why a cash offer almost always beats a financed offer–the seller feels as if there is a greater certainty the deal will close if you’re paying cash).
The second biggest contingency is your home inspection. In a less competitive market, it would be beneath consideration to waive your right to have the property inspected. And with as many “renovated old farmhouses” as there are in the market, it makes sense to find out if the basement is too wet, or the roof is too old, or if there might be asbestos lurking in a hidden corner of the attic. That said, it’s important to note that most renovated homes, while they may have a few “issues” like many old houses do, very few of these issues amount to a catastrophe that would impinge upon the value and eventual resale of the house.
Many houses in the Hudson Valley are well over a hundred years old; some as old as two hundred years. And if they have not already slid off of their foundations, chances are they are not likely to do so within the lifetime of a new owner. Nor is it uncommon for an old basement to be a little bit damp (many here have dirt floors). If it seems counterintuitive to accept a house with a moist, dirt basement, please be aware that many of the most attractive properties in the region have exactly that, and have had it for decades and will have it for decades to come.
Waiving an inspection is a large decision and not to be taken lightly. However, many properties are fairly obviously in good or very good shape; and a property that has been obviously well-maintained represents a much smaller risk than perhaps might be a buyer’s assumption. It’s true that many first-time homebuyers can get spooked by the prospect of owning a “money pit” type of property–but unless you can see (and are prepared to fix) a property needing a lot of work, you probably have already steered clear of that. And many houses that “need work” really need what amounts to “updating”–which boils down to a choice rather than a necessity. For instance, almost every buyer wants to update the kitchen, unless it was renovated very lately. A kitchen with older appliances and countertops should not deter a buyer, almost without regard to price.
All this is to say that there are situations where you may waive an inspection to win a bid, and come out none the worse for it. And in some cases, it may make the difference between getting the house, and not. This is an important consideration for a buyer in today’s competitive market.
Highest and Best
The above are words that buyers do not want to hear. But they are heard often, as in “We have seven offers on the property and we are going to highest-and-best on Monday”. This means that the buyer needs to think carefully about how much higher they are willing to go to obtain a property, and whether or not they can remove at least that inspection contingency. The winners of bidding wars are those who go a little higher; or those who are going higher and paying cash; and (sometimes) those who are confident enough to understand where an inspection is not needed. Sometimes the winner has done all three of these! This is an indication of the competitiveness of the current market.
Locals
There are a couple of intangibles that can also help a buyer in a competitive situation, and it relates to locality. Everyone knows they’d rather work with people with whom they are familiar and with whom they have known success. If your offer includes a pre-approval letter from a known, local lender; and if you are working with a local attorney–both of these items will absolutely help your offer. For even if the seller doesn’t know these folks (they may or they may not), it’s nearly a guarantee that their real estate agent will certainly know both the lender and the attorney. And the best you can hope for as a buyer–whether or not you have a buyer’s agent–is to get the seller’s own agent pushing your deal forward with their client. If they can say “I know where they’re borrowing the money and I know their attorney”, it lends an air of comfort for the seller that can only benefit the buyer.
Using national lenders or your own bank certainly does not guarantee you’ll miss out. But if you want to add a little bit of “spin” to your offer, it makes sense to work with local people who know the other players likely to participate in the deal.
Beyond that, it’s important to keep in mind that unless your issue is “affordability” pure and simple, your risk is significantly mitigated by the fact that your house is an enormous asset once you own it. Even if you soon realize you don’t want to have that property, and even if that happens fairly quickly, you will almost certainly find another buyer who will gladly take the deed off your hands.
If you have any questions regarding selling or buying a property in the Hudson Valley, feel free to get in touch!
Disclaimer: The views expressed herein are solely those of the author, and are not related to nor endorsed by any other entity or person. They are provided for informational purposes only, and cannot be taken as any type of advice regarding the purchase or sale of real estate nor any other type of investment. The expression of these views does not in and of itself establish of any type of relationship with the reader, professional or otherwise.
