Tips for Buying a House in a Seller’s Market

It’s a strong seller’s market here in northern Virginia. The supply is low, and interest rates are also at historic lows, with rates hovering around 2.5% on a 30-yr fixed. With demand for houses being so high, bidding wars and multiple offer situations are much more common these days.

Related Post: Homebuying 101: A Quick Guide For First-Time Homebuyers

There are many approaches you can take to make your offer more attractive. Of course, there are pros and cons to each approach. Having an experienced, licensed real estate agent in your corner to guide you can give you the edge you need to get you the house you want.

Here are some tips I give my buyer clients for buying a house in a seller’s market:

I am a licensed real estate agent in Virginia. This information may or may not pertain to states outside of Virginia. Please consult your real estate agent.

1. Know your competition. Have your agent contact the listing agent to get as much information as possible. Most of the time, the listing agent will let you know how many offers they’ve received. Sometimes, they may let you know if they have an offer over list price. Also, find out if there’s an offer deadline (usually Monday) and if they’ll consider accepting a compelling offer early (e.g $30k-$50k above list, most contingencies waived).
2. Consider using an escalation addendum. An escalation addendum increases your offer by a certain increment (e.g. $1,500 or $3,000) above any other offer, up to a maximum price. In the addendum, you fill out your increment and your maximum price. Why not just escalate $1 over the next offer? In a real estate contract, there are many other factors other than price that are considered. For example, a cash offer is much more attractive than an offer with a mortgage as there is less risk of the deal falling through. The seller may need rent back, and a buyer may offer free rent back for a week or even a month. Factors like these can be worth thousands in the mind of the seller, so a $1 difference wouldn’t cut it.
3. Consider waiving the home inspection or select home inspection with option to void only. There are three options you can choose from regarding the home inspection contingency: no home inspection, home inspection with option to void only, and home inspection with option to negotiate repairs or void. Being able to negotiate repairs is the most favorable for the buyer but least attractive to the seller. In a seller’s market, I recommend to most of my buyer clients to select home inspection with option to void only. This allows you do to a home inspection and void the contract if the house is a lot worse than you expected. Many times, sellers will try to fix the bad issues to keep the deal from falling apart. There are other tricks of the trade such as conducting a pre-offer inspection or asking to do a home inspection for informational purposes only, but these are beyond the scope of this post.
4. Consider waiving the radon inspection. Radon is a gas that can seep in through the ground and can cause lung cancer through extended exposure. A radon inspection costs about $150. A radon mitigation system costs about $1,000 to install and basically pulls air from the lowest level of the house and sends it outside past the roof through a pipe. If the house is in an area that is known to have higher levels of radon, you can still conduct a radon test, but risking the attractiveness of your offer over a $1,000 fix may not be worth it.
5. Consider waiving the appraisal contingency. Waiving the appraisal contingency is attractive to sellers because chances are higher that an appraisal can come in low when there are bidding wars. If there is an appraisal contingency and the appraisal comes in low, the buyer can ask the seller to reduce the price. You can waive the appraisal contingency on conventional loans but not for FHA and VA loans. If you’re going to waive it, you should be confident that the house will appraise at or around the escalated price. If the appraisal comes in low, you may have to come up with some extra cash at closing because the lender may lend based on the lower, appraised value. For example, if you make a 20% down payment on a $500,000, but the house appraises at $450,000, the lender would lend you 80% of the lower, appraised amount. So, you’d be able to borrow 80% of $450,000 ($360,000) instead of 80% of $500,000 ($400,000), meaning you’d have to come up with another $40,000 that you probably don’t have. This example is a little extreme (appraisals don’t usually come in $50k low), but hopefully you get the point. You can always set a limit in the contract saying you will pay up to $10,000 above the appraisal if the appraisal comes in low.
6. Consider waiving the financing contingency. Actually, I wouldn’t consider this unless you were super confident. In most cases, I wouldn’t feel comfortable asking my buyer clients to waive the financing contingency.
7. Consider free rent back for the seller. If the seller needs rent back, allowing the seller to live in their house for free for a little longer is like paying for their rent. That is worth thousands to them.
8. Get a lender endorsement. Have the lender call the listing agent and let them know you are a well-qualified buyer. Working with a good, hard-working lender gives the seller and listing agent more confidence that the deal will go through.
9. Don’t ask the seller to pay for a WDI inspection or home warranty. The contract has a section for wood-destroying insect (e.g. termite, carpenter bees) inspection and home warranty. In a seller’s market, don’t ask the seller to pay for these. A WDI inspection is about $40 and a home warranty (optional) is about $500.
10. Use a professional, courteous agent. The listing agent and the buyer’s agent (a.k.a. selling agent; confusing, I know) will be communicating a lot during the contract to close period. Getting on the good side of the listing agent and/or seller can also give them more confidence that the deal will close smoothly. On the flip side, working with a rude, unresponsive agent can make it a difficult month for the seller and listing agent. Little things like this can make a difference sometimes.

There are some other things you can try such as writing a personal letter or increasing the earnest money deposit, but in my experience, things like these don’t really make a big impact.

In a seller’s market, I’ve seen that buyers can start to get what I call “buyer fatigue.” They get tired of finding a great house, making an offer, getting outbid, and having to start the search again. Try to be patient and try to enjoy the process. Winning a bidding war doesn’t always feel like victory. Being the highest offer out of 15 offers just means you were willing to pay the highest price, though it may be well worth it for the perfect house.

Happy house hunting!

If you are looking to buy or sell a house in northern Virginia or have any general real estate questions, please reach out to me at realtordannylee@gmail.com. I am always happy to help. I specialize in Fairfax County, Loudoun County, and Arlington County.