How market conditions affect your offer

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Real Estate

By Matthew Vire | Broker | Coldwell Banker Realty

How's the market?  We've all heard this phrase.  Heck, you've probably even uttered it a few times.  While that three worded question seems simple enough, you'll rarely find an agent who can sum up the market in as simplistic a manner.  Why?  The market is always continually affected by internal and external factors.  What are those factors?  Let's talk about the major ones.

             1.  The economy -   Plainly put, economic growth or lack there of has a huge impact on the housing market.  When the economy is robust, usually the housing market is as well.  Also, the housing market has the ability to fuel the economy.

             2.  Inventory -   Economic law of supply and demand.  High supply usually means lower pricing.  Low supply caters to the higher pricing model.

             3.  Location - Not every market is the same.  Location drives desirability, and thus, affects market pricing

             4.  Mortgage Rates - An interest rate heavily impacts the purchasing power a buyer has on a particular property.  Lower rates means higher affordability.  

 Those are the big four.  If any of these are askew, it can heavily impact the price a prospective seller can expect for their listing.  A good Real Estate agent is in tune to these constantly moving factors and explaining changes to clients as they occur.    Now, as a Buyer, how has your agent answered the question, "How's the market?"

As I write this in mid-November of 2020, the Southern Maine Market is experiencing the perfect storm of all four of the above conditions heavily tilted towards Sellers.  How does this affect your offer as a Buyer?  You should take several things into consideration prior to structuring your offer for maximum effectiveness.

             1.  It's great to get pre-approved these days.  However one thing some buyers are doing in this market is having their information fully underwritten prior to making an offer.  You can structure your offer as  FULLY  APPROVED pending title review and appraisal.  Other than a cash offer, this can better position you against other buyers fighting for the same property.  Ask your lender if underwriting can give you a full approval.

             2.  Consider your contingencies.  In a Seller's market, the cleaner offer wins.  Period.  If you write up your offer and ask for the Sun, the Moon and the Stars, likely you will  be beat out by a competing offer.    Try to keep your offer clean and free of turn-off's and non-starters for a Seller.  This is obviously a case by case basis for sure, but ask yourself, if you are asking for too much to be done for by the Seller, is this really the right property for you?

             3.  Inspections are nerve-wracking for Sellers.  Anything you can do to alleviate their concerns with regards to this contingency.   Obviously the most palatable for Sellers is inspection waivers, but more  realistically, try to keep your timeframes respectable.  Also, consider having your Buyer's agent ask the listing agent who their favorite home-inspectors are.  The listing agent has a direct line into the Seller, and if a home-inspector they believe to be credible reports issues back to you, it will serve you well when trying to negotiate any issues that might have arisen from the building inspections.

             4.  Price.  Few things stick out immediately as offering price.  You may be ceiling bound with respect to how much you can offer, however, that doesn't mean you can't be competitive.  The most important thing to realize is that in a Sellers market, you may not get a second chance to put a different offer price.  Our current market conditions find us in many, many multiple offer situations.  A good rule of thumb is to always put your best foot forward when wanting the Seller to consider your offer.   Worried about bidding against yourself?  Talk to your agent about escalation clauses.  They can be used to make sure that you have an opportunity to put your highest bid in.

             5.  Lastly but probably just as important as everything above, is expectation management.  Not just yours, but everyone's involved.  Our current marketplace is crazy to put it aptly.  You may write 5, 10, 15 or even 20 offers along the way towards purchasing your new house.   Buyers are submitting crazy offers to Sellers in sheer desperation of going under contract.  Sadly, this is a reality in our current environment.  You can't control those factors.  You can only control how your offer is structured, and how your agent presents it to the Listing Broker, or Sellers.   But remember, should your offer be accepted by the seller, and you had to structure your offer in a manner that has you offering 15 or 20 thousand over asking price, you need to remind yourself that even though you are paying over the Seller's "asking" price, the condition of the house has not changed.  If it's a 1975 colonial, it could have issues common to it's age.  Paying over asking price doesn't entitle the purchase to be free of defects.   Real Estate is a commodity, and supply and demand determine price.  That price on the offer got you the opportunity to purchase the house, not the ability to expect a new house condition because you submitted higher than list price.  Remember, an appraisal will determine if you are over paying or if the market supports it.

              6. Consider writing an introductory letter, or take some time to do a video introduction.  This humanizes you in the eyes of the Seller, and can sometimes make your offer stand out more if most other terms are equal.  Just a few moments to jot down or talk about who you are, what you love about their house, and how moving to the area will transform your life.  Speak from the heart, and it will seem genuine.

There are other items to consider, but hopefully by now you've realized that aligning yourself with a good agent will fill in any gaps not covered by this post.  Markets always shift and environments change.  If you find yourself uncomfortable in a certain market place, consider holding off on Buying until the conditions shift towards a more comfortable setting.  Just remember, no one can control the external factors that change these parameters and you only thing you can control is the Locations in which you search.  Inventory could rise, however mortgage rates may also rise.  You just can't predict how the market will be in the future.