It's A Seller's Market - Help Me Understand This Real Estate Market!
As a full time Realtor in Richmond since 1996, I have seen a lot of different real estate market! And as a Realtor whose business is 50% sellers and 50% buyers, I get asked a lot of questions about today's real estate market, and is it like the run up to the downturn that happened in 2008! Then the next question is always, what kind of market are we in, and if I want to buy a house, can I do it!
These are great questions. Here are my thoughts on today's real estate market in 2022 and how it compares to the others we have seen. But first, let's look at just how you define what a Seller's Real Estate Market is and what a Buyer's Real Estate Market is! The type of real estate market we are in definitely impacts how a buyer and seller will price and sell/buy their homes!
So, first, a Seller's Real Estate Market? By definition this is a market where demand (the number of buyers out there looking for a home) exceeds the number of homes that are available for sale! If you have been reading newspapers and listening to the radio or even listening to your friends who are looking for homes, you have probably heard that we are in a very hot seller's market!
Well, what happens when the area is in a hot seller's market? Because there are a lot of buyers out there, and very few homes for them to choose from, sellers will generally have the upper hand! It means that the lack of homes leads to higher prices and more competition for buyers that are looking - which then leads to multiple buyers making offers on the same house (aka bidding wars) with buyers having less room to negotiate - which leads to homes going under contract fast (aka days) and usually above the asking price!!!
So, if you are looking at some of the statistics for your area, you want to look at ones like:
Days on Market - this is the # of days it took for a seller to accept an offer - if it is less than 30 days you are in a seller's market (in April the Richmond Metro area's average days on market was 14 per our MLS)
Absorption Rate - this number tells you just how long it would take to sell all the houses that are currently listed if no other homes were to be listed for sale - if this number is between 0 and 5 months, then you are in a seller's market (in April the Richmond Metro area's absorption rate was .7 months - that's right - less than 1 month per our MLS)
Higher Offer Prices - bidding wars are leading to higher prices - so if a home sells above the asking price, chances are there were other offers for the seller to look at and to accept! In April the Richmond Metro area's homes sold, on average, at 105.8% of the asking price - sellers were getting on average 5.8% above their asking price! And in the month of March, sellers got 103.8% of their asking price! And in February they got 103% of their asking price! And in January they got 100.9% of their asking price! So this number continues to rise, letting you know that buyers are having to pay premium dollars to compete in bidding wars!
Number of Offers - it is hard to know how many offers a seller is getting in this current real estate market, but I can tell you that every one of my buyers this year competed against at least 10 offers! Some were able to win the bid, while others were not! I even had one buyer who was competing against 35 offers!!!
Number of Homes Available for Sale - in a seller's market, there is a lack of inventory. That can be as little as 2,000 or fewer homes! When I look at the Richmond Metro area, at the end of April 2022, there were only 1,070 homes for sale per MLS. This was a change from the 874 homes that were available for sale at the end of February 2022, and the 905 homes that were available for sale at the end of January 2022, but still very few homes for buyers to choose from!
And because of the type of real estate market we are in, sellers and their Realtors have been using some different tactics to get the homes sold! You may see homes that are Coming Soon for a short period of time, then becoming active a few days later! Or the home is put into MLS as an active listing but showings are delayed until say Thursday or Friday of that week! Listing Realtors may indicate that any offers received will not be reviewed by the seller until Sunday or Monday, but the seller reserves the right to accept any offer prior to the review time! A seller may request a delayed closing time or an earlier closing time but with a possession after closing given by the buyer! The seller may request that the buyer present their highest and best offer! The seller may request no escalation clauses be given! A seller may request that the buyer use a particular lender! As you can see, there are a lot of things a seller may request in this seller's market - and these are things that as a buyer in a very hot seller's market you should try to accommodate the seller's requests!
So then the question is: how do you ultimately become the winning bid in this hot seller's market? There are things you can do in your offer -
Write the strongest offer you can - your highest & best offer
Be prepared - your offer may get accepted but it also may not get accepted
Waive as many contingencies as you can
Put down a higher earnest money deposit-the higher the better
Go through a full underwriting approval before even looking at houses
Compromise on those things in the house that you can't change in the future
Have enough money to cover your closing costs so the seller doesn't need to pay
Take the house as is
Offer to have the appraisal done immediately
Tighten up inspection timelines
Offer quick closing
Offer to allow seller to retain possession after closing at no charge
Ask the seller's agent what they think it would take for you to get your offer accepted
Be ready to move quickly when a house comes on the market
Be patient and willing to wait
Be aggressive - but only to your comfort level
Please remember that this seller's market is very very different from the run up in the 2006 to 2007 seller's market! Back then, the run up was due to mortgage fraud! This market is different since many things were put into place to prevent the kind of fraud that was seen then! Banks have tightened up on credit standards and loan requirements, appraisals are coming in at fair prices! And, if a homeowner is no longer able to make the mortgage payment, most homes have appreciated in value so much that if the homeowner sells the home, they should have enough to pay off the mortgage without going into foreclosure or a short sale!
If you are thinking of buying a home in this market, and have questions, please don't hesitate to get in touch with me. I am happy to answer your questions and to help you navigate this market!