5 Myths of a Hot Seller's Market (and the Real Facts!)
When housing inventories run low and the demand is high, market conditions tip in the seller’s court, creating very favorable terms and conditions for those selling a home.
In a strong seller’s market, it’s not uncommon to see bidding wars as would-be buyers compete fiercely as they attempt to place the winning bid, which is often also the highest offer. Homes may go under contract at tens of thousands of dollars or more over the original listing price. Buyers may resort to dropping typical contingencies from offers, such as waiving appraisals or home inspections, or offering to pay all closing costs. Other buyers may compete with all-cash offers to offer a quick closing.
As a potential seller, the power balance is squarely in your favor in a real estate deal right now. However, there are still limits in both market conditions and buyer’s tolerances. Before you list your home, be aware of some of the most common misconceptions in a seller’s market that can tank a sale, or worse – land you in court.
Myth #1: Price it High – and Watch it Fly!
The reality: Even in a seller’s market, the initial listing price matters.
Price a home too high, and the property will simply sit on the market, particularly if bidding wars are common in your real estate area. A very high starting price point can actually be a deterrent, especially to fatigued buyers who have been in the market for quite some time trying to buy.
If the current market-area conditions lean toward bidding wars, a high initial price point could be an immediate turn off, as buyers expect that they’ll need to bid even higher in order to even have a chance at closing the deal. The end result may well be that no one makes an offer.
In a hot seller’s market, the longer a home sits on the market may also give the perception that there is something wrong with the home; otherwise it would be under contract. If the typical on-market time is, for example a week, and your overpriced home has been sitting on the market for a month, then it’s hard for buyers (and agents) not to ponder the questions, “Is the home just overpriced? Or is something else wrong with it?”A Better Strategy
Set a fair market price from the beginning to set the stage for multiple bids and market competition. It’s the same rationale that makes an auction work. The opening bid is never sky-high, it’s usually a fair-market price, and the competition amongst bidders drives up the price. Learn more in How to Estimate Your Home's Value.
Myth #2: The Condition of the Home Doesn’t Matter
The reality: Even in a seller’s market, a home in poor condition will not get top dollar.
As buyers tour your property, they'll attempt to envision themselves living in that space. An investor will largely do the same, but will be evaluating the home’s suitability and appeal to tenants. If the home is in extremely poor condition (and in need of significant renovation), an owner-occupier may balk at the sheer amount of work needed just to get the home in livable condition. Many buyers don’t want a project, they simply want a move-in ready home.
A home in poor condition will not necessarily woo investors, either. An investor will quickly pencil out a mental estimate of repairs, and compare this against list price. The deal simply will not be profitable if the investor has to pay "top-dollar" yet still have to sink sizable renovation funds into the home in order to successfully rent it at market rate.
Whether it is an owner-occupier or an investor, both will closely scrutinize the home’s condition to determine if the sale is a worthwhile one, either to meet the goals of homeownership or in acquiring a successful rental property. A home in very poor condition or in significant disrepair will be a hard sell, seller’s market or not.
Myth #3 : Time on Market Doesn't Matter in a Seller's Market
The reality: The condition of a home, and its price point, strongly correlate to the amount of time a given home will sit on market, unsold. If there is an Achilles heel as a seller, a home that is lagging on the market would be it.
Time on Market Sends a Clear Signal
One of the biggest strengths a real estate agent can offer is insight into current market conditions, particularly what the average time on market is for a comparable home before it goes under contract. In today’s environment, a few days to a week is not uncommon--meaning competitively priced homes, in good condition, go under contract quickly.
As a seller, you may have to face some hard facts if your home has sat on market longer than average. Either your price point is too high, the home needs significant repair, or there may be structural, building, or code violations that must be addressed to attract bidders. Note: There is a clear tipping point in buyer interest and the volume of showings once a home has passed the average time on market benchmark.
Myth #4: You Don't Need to Work with an Agent in a Seller's Market
The reality: Selling your home as a FSBO is certainly possible, but there can be a number of pitfalls, particularly for the uninitiated.
In a super-hot seller’s market, you may be weighing the option to sell your home on your own as a FSBO (For Sale by Owner) and save the sales commission. With a typical commission of six percent, this could be a significant savings if you can pull it off.
In some counties, the County Clerk, Assessor, or a few title companies may offer free or low-cost FSBO packets to guide you through a home sale, and closing– but make no mistake, it is a process. (You can also find state-specific home selling documents through MilitaryByOwner's partner, US Legal Forms.)
At a minimum, you’ll need to develop a contract that details the sales terms, expectations and timelines, and conveyance of property. In some states, you are required to have an attorney draft the contract. Additionally, you may be at a disadvantage in marketing, as your FSBO listing will not be included on the MLS (Multiple Listing Services), although in some states you can add your home to the MLS through a flat fee listing agent.
If you're planning to sell by owner, also consider:How Are Your Negotiation Skills?
Unless you're a master negotiator, be aware that you may be putting yourself at a disadvantage in a FSBO sale by not having a dedicated agent to negotiate on your behalf. Buyer’s agents may also be less likely to show or promote your listing, as they’ll still be doing the same amount of work for their buyers, with little or no compensation. It’s very likely that the buyer’s agents may ask you to include a commission to compensate them (or simply write it into the offer contract, and see if you catch it).You’ll Need to Learn the Law
FSBO transactions are not exempt from federal or state law, which means that without an agent, the duty to ensure your deal is meeting standards is now your legal responsibility. You’ll need to follow Fair Housing Act guidelines in showing your property and meet all legally required selling procedures your state requires, such as disclosing issues with the property and proper notifications.
For instance, some loans, such as the VA Loan, may require sellers to make VA-required repairs in order to close the loan and sale. (For some repairs, the VA prohibits the buyer from making certain repairs, and demands repairs be made by the seller to fund the loan.) Ignorance of the law will not be an excuse, and the ramifications can be quite costly if you don’t invest the time to get the legalities right.
Myth #5: You Don't Need a Move-Out Plan
Although you can certainly negotiate very favorable terms as a seller, eventually you must sell the home, move out, and let it pass to its new owners. In the frenzy and excitement of a seller’s market, it can be easy to underestimate just how difficult it might be to find a new home yourself. Many sellers have found themselves in the predicament of quickly getting their home under contract after an exciting bidding war, perhaps even getting an all-cash and higher offer, which typically closes more quickly as there is no delay in getting financing set up.
If sellers aren’t careful, closing day can come rushing in and they’re now scrambling to find new accommodations. A buyer who has planned their life around the agreed-upon closing date will have very little patience for a seller who will not relinquish the home or attempts to delay the sale as a result of poor planning.
If the Buyer Meets Their Terms, and You Don’t– You Could be Sued for Specific Performance
Specific performance is a legal remedy allowed under contract law, where a court issues an order requiring a party to perform a "specific act," such as relinquishing a property, under agreed-upon contract terms. It’s not enough to simply offer money (such as offering to give the buyer money or pay rent to the buyer) in order to stay in the home longer, if the terms were for you to move out and transfer the property to the new buyers. The buyers are contractually owed the home under the agreed-upon timeline and terms of the contract. If you cannot, or have not, found a replacement address when closing day arrives– this is your problem, not the buyer’s.
Selling a home can be a daunting, emotional, and nuanced experience. But with MilitaryByOwner, you’re never alone! From start to finish, whether it’s initial listing considerations to think about or the full steps required for a sale and closing, the experts at MilitaryByOwner have your six!