Tips for buying in a hot housing market 

As the spring housing market heats up, record-low inventories are bringing new challenges to this year’s homebuyers. With few properties available and lots of competition, would-be purchasers need to prepare ahead of time to increase their chances of getting their favorite property — without overpaying for it.

At the end of March, Utah had the fewest number of homes for sale on records dating back to 2003. With most markets clearly leaning in favor of sellers, buyers will want to come to the table prepared. Here are some tips to help you.

Work with a REALTOR®

Local REALTORS® know the market. They can help buyers determine what properties are bargains and those that are overpriced. They know how quickly homes are selling and whether they sold for their asking price. All this information will help buyers know how strong to make their offer, perhaps even going above asking price if the data back it up.

If the market is ultra-competitive, REALTORS® can help buyers make an offer that will stand out. Should the seller receive multiple offers, REALTORS® can also guide buyers through the complicated bidding war situation. 

Visit with a mortgage lender

Before shopping, buyers will want to visit with a mortgage lender to determine how much they can realistically pay for a home. A mortgage lender can also provide a pre-qualification letter. Buyers present this document with their offer so the seller knows they are serious purchasers who can afford the home.

Taking the extra step and having a pre-approval, which shows an even greater commitment, may make an offer even more competitive. This will also shave some time off the closing process once buyers secure a contract on a home.

Beware of bidding wars

While buyers may end up paying more simply because prices are headed up, they’ll want to avoid overpaying. Sometimes buyers get too focused on winning a bidding war and go out of their price range. Before emotions get involved, buyers should know ahead of time the maximum price they are willing to offer.

Be flexible

Sellers are looking for buyers with the greatest likelihood of completing the sale. That’s why buyers may want to consider dropping contingencies, such as making the sale dependent upon whether the buyers sell their current residence.

The seller may also need to finalize the sale by a particular date or may have other timing needs. Buyers who are flexible with the various contract deadlines may find themselves with the upper hand.

Flexibility in search area and consideration of less-than-perfect homes may also expand a buyer’s choices.

Make the earnest money count

Buyers show sellers they are serious about purchasing the home by putting down a substantial amount of earnest money. Should the sale fall through, buyers will lose that money, except in cases where the contract allows a cancellation without penalty. This shows the seller the buyers have a lot to lose if the deal doesn’t close.

Be careful with escalation clauses

When markets get really hot, some buyers consider using escalation clauses, especially if they have repeatedly lost houses to other buyers. This is a situation where buyers agree to increase their purchase price beyond the highest offer the seller receives.

This can be a dangerous situation. Without a properly written escalation clause, buyers risk paying more than they intended. It’s particularly precarious if they don’t put a cap on the amount or fail to make the contract contingent on the appraisal coming in at that price.

When considering an escalation clause, buyers should work with an experienced REALTOR® who can walk them through the process and help them avoid the pitfalls associated with this strategy.

These are just a few tips to help buyers navigate the competition this spring. Buyers, sellers and homeowners can learn more about housing market conditions in their own areas by contacting a local REALTOR®. Find one at UtahRealtors.com