Every autumn, home sales typically plummet as families focus on the upcoming winter holidays.
But this year the seasonal decline is greatly diminished due to COVID-19 and the widespread quest for larger living space to accommodate home-based work and schooling. Indeed, pending home sales registered only a minor decline of 2.2% in September, after four consecutive months of robust growth.
“The demand for homebuying remains super strong, even with a slight monthly pullback in September,” says Lawrence Yun, chief economist for the National Association of Realtors (www.nar.realtor).
Buyers are thrilled by the availability of low mortgage rates -- as low as 3% or less for a 30-year fixed-rate mortgage. Yet many are extraordinarily frustrated by two interlocking factors: a severe shortage of inventory and galloping price increases.
Real estate specialists don’t necessarily advise that buyers postpone their purchase plans until 2021, given the likelihood that demand will remain strong next year. Rather, they suggest that this year’s holiday season could be as good a time as any for buyers to move forward in a high-demand market.
“There’s zero point in delaying. People selling houses in November and December are highly motivated to move, and hence will usually negotiate in good faith,” says Michael Crowley, a real estate broker in the field since 1992.
Crowley tells the true story of one client who just now acted decisively in a competitive market to beat out rival bidders.
The client -- a 36-year-old physician determined to buy a house near her own place for her elderly parents --used an “escalation clause” in her offer to ensure she’d have the winning bid for the small blue split-entry house her folks picked out.
“This doctor won against four other competitors by offering to top any other offer up to a finite amount. Ultimately, this escalation clause cost her just $2,000 over her original bid. Because her parents put her through medical school, she was extremely pleased to thank them with the house they wanted,” says Crowley, a past president of the National Association of Exclusive Buyer Agents (naeba.org).
Still, he only recommends that clients attempt the escalation-clause strategy if they’re found a place they truly covet.
“It’s a funny thing, but people will sometimes fight to outdo other bidders for a property they don’t really like. You never want to fight for a lemon just for the sake of winning,” he says.
Here are a few other tips for buyers:
-- Inform yourself on local property values before you bid.
Though there are many neighborhoods where would-be buyers outnumber willing sellers, real estate specialists caution buyers against generalizations.
“It goes without saying that all real estate is local. That means the national picture is irrelevant, and your local market could be dragging when others are soaring,” says Eve Alexander, a veteran real estate broker who specializes in luxury properties.
She urges buyers to educate themselves on local property trends in the area of their choice before venturing a bid, particularly if their bid has an escalator clause attached.
“For comparisons, try to identify five to 10 comparable properties that have sold recently in the area where you’re looking,” Alexander says.
If you’re seeking to buy in a neighborhood with widely varied properties, it’s helpful to compare the homes on your list on a price-per-square-foot basis. Then adjust for differences in size and home features, such as garage size.
After estimating the current market value of the home you wish to buy, it’s time to decide how aggressive an offer you want to make. Alexander says that will depend on how enamored you are with the home.
“You won’t want to push the limits if you’ve fallen in love with the property and feel it’s a ‘do or die’ situation,” she says.
On the other hand, you might choose to make a lower offer if there are other available homes in the area that would meet your needs equally well.
“It’s always easier to negotiate without emotion if you can find second- and third-choice houses you also like,” Alexander says.
Once you’ve made a firm decision on your bid, she recommends you attach a brief but friendly letter that explains your position and draws on comparable sales data to support it.
-- Reject comparables from “market testers.”
Eric Tyson, co-author of “Home Buying for Dummies,” says in every market there are a few sellers who won’t budge from an unrealistically high price.
“It’s a given that some supposed sellers aren’t really motivated to make a fair deal,” he says.
How can you tell which sellers are merely testing the market and will never negotiate seriously with anyone who bids less than their lofty list price?
Tyson recommends you ask your agent to find out if previous offers have come in on the property you want. If the owners have already rebuffed one or more decent offers without so much as a counterbid, this indicates they’ll probably resist reason with you, too.
The good news for buyers is that information on past offers is often readily available through the listing agent.
“Agents are inherently outgoing people. Some have very loose lips and will talk candidly about their clients’ negotiating position and whether it’s worth your while to do a low bid,” he says.
-- Try to discover the sellers’ equity position.
Are you seriously interested in a home but have yet to submit an offer on it? If so, Alexander says it’s wise to inform yourself on the sellers’ ownership stake before you bid. As she says, those with more equity have more potential room for compromise.
“What you’re looking for are insights into the mindset of the sellers,” Alexander says.
One source of clues on the owners’ equity position can be found by searching local government land records. At the minimum, these records (usually available online) should tell you when the current owners purchased the property and the original price they paid.
“If the sellers brought the house a couple of decades ago and haven’t refinanced, they should have a lot more equity,” Alexander says.
(To contact Ellen James Martin, email her at firstname.lastname@example.org.)