Homeowners Guide for Motivated Buyers
After a housing price slowdown toward the close of 2018, 2019 may be a better year for buyers than it has been over the past few years. While it may not be quite a buyers’ market, in some areas, buyers may be seeing a fairer playing field.
Millennials (generally considered people born between 1981 and 1996) are around the median first-time homebuying age, which is 32, according to the National Association of Realtors (NAR). Millennials have been the most active generation of homebuyers for the past five years, per NAR. In fact, 36% of all home purchases in 2018 were made by this generation, with Gen X ranking as the second-most-active homebuying generation at 26%. In early 2018, 46% of loans purchased by Freddie Mac were from first-time homebuyers, up from 42% the previous year.
For people house-hunting in 2019, much of the same advice from previous years remains: You’ll need to secure a strong pre-qualification letter and be prepared to move quickly to buy homes in tight housing markets, which are often urban areas with a high concentration of millennials.
As a whole, the market is more balanced between buyers and sellers than it was 2018, which means there may be fewer bidding wars and more wiggle room for negotiation. However, as mortgage rates rise, you’ll want to make sure any home for which you put in an offer is within your budget.
How did the housing market change in 2018, and what do buyers need to know now?
In 2018, the housing market started to slow for the first time in a few years, as mortgage interest rates increased. While many areas still have tight inventory, the overall pace of price acceleration in the real estate market has cooled a bit. List prices rose 8.2% in 2016 and 10% in 2017, then just 7.3% for 2018, according to Realtor.com. The top 10 areas that slowed the most, according to the site’s 2017-2018 study, were Stockton, San Jose, San Francisco, San Diego and Oxnard in California; Nashville, Tenn.; Honolulu, Dallas, Seattle and Portland, Ore.
“In 2015 to 2017, things were just on fire; you’d put a house on the market and go to bed and get 10 offers the next day,” said Phoenix-area realtor Lauren Schellhase. While Phoenix still has a sizeable real estate demand paired with limited inventory, Schellhase said she isn’t seeing the bidding wars that defined the market just a few years ago. Buyers are being more choosy with offers, likely due in part to the mortgage rate increases (although rates were headed back down in late 2018 to early 2019).
Nick Boniakowski, market manager for Redfin’s New York/New Jersey region said it’s better to be a buyer now than it has been in the past three years. “We see that continuing [for 2019],” he noted. “While we don’t see inventory increasing dramatically, we see it being a less frustrating place [for buyers] to be.”
That said, you’ll still need to dot your i’s and cross your t’s while on the house-hunt. That means obtaining a preapproval or pre-qualification letter and moving fast to submit strong offers on a home you really want.
How can buyers find motivated sellers?
It stands to reason that most homeowners who list their houses are motivated to sell. In general, sellers want to avoid a situation in which their house is sitting for too long on the market, as this costs money and time.
That said, there are a few key traits to look for as you browse listings to find highly motivated sellers. Most important — look for a home that’s priced to sell. A home offered at the market rate generally indicates the seller is truly ready to sell — and is listening to their real estate agent when it comes to realistic pricing.
A home that’s priced high in comparison to the competition may indicate the seller is fine with waiting until a buyer is willing to pay their inflated price. Those property owners are generally not as willing to negotiate; this could be because the owner wants to get as high a price as possible or is sentimentally attached to the home.
Search for listings where it’s obvious the seller put time and effort into positioning the home for sale. Along with price, look for professional photos, a clean and possibly staged home and responsiveness to requests for showings. Those are all signs pointing to sellers who want to move their property quickly.
On the flip side, there are areas where sellers list homes to gauge the market, rather than to offload a home as soon as possible. This may be more common in affluent areas where the homes on the market are part-time vacation residences, second homes or short-term vacation rentals (think Airbnb). The Hudson Valley and Catskill mountains north of New York City are prime examples of such areas. Airbnb named the Hudson Valley as one of the top 19 destinations for 2019 (one of only two U.S. locations on the list) based on the area’s 100% increase in bookings year over year and 130% increase in searches.
Megan Brenn-White, a realtor at Halter Associates Realty, who works in this region, recently told LendingTree, “I’ve had four listing appointments in the last three weeks, where people are considering selling the place or renting it out. It’s in the place when they normally would have sold, but haven’t.”
In that case, you might have to consider taking the opposite approach of the advice for most markets: In areas where vacation homes are common, look for listings that do not have professional photos and the homes are likely not staged. When the rules are flipped, you’ll have to swim against the stream and look for properties that don’t match the rest of the market (which means full-time family homes, not short-term rental properties).
How can motivated buyers get the best price for a home someone is looking to sell quickly?
Before you even submit an offer, make yourself an ideal buyer. That means at least having a pre-qualification, if not a preapproval, in hand. While that’ll make it more likely for the seller to accept your offer, it won’t help when it comes to the price.
That said, don’t be afraid to make an offer below the asking price. “If you’re interested in something, try to make an offer. Either they’re going to come back and say this price is too low and we’re not going to negotiate, [or] they’ll come back with a counter — you won’t know until you tried,” advised Brenn-White. Her rule of thumb is keeping the offer within about 10% of the asking price to avoid insulting the seller.
In Phoenix, where there’s limited housing stock and it’s common to find yourself competing with other buyers, despite the recent cooldown, you might not have as much wiggle room to negotiate on the price.
“The stronger your offer is right out of the gate, the better chance you have at getting that contract secured,” Schellhase said. Another method is to look for homes that have dropped in price. Often, a homeowner who responds to the market by dropping the price is willing to negotiate and motivated to sell.
Boniakowski recommended the buyer does all she or he can to improve the terms for the seller by reducing or eliminating contingency clauses in the offer. “The more you can do to take away the concerns that you’re not going to close, the better,” he said.
Brenn-White also suggested, in some circumstances, that writing a heartfelt letter could help you snag your dream home. She said she’s seen a seller choose an offer that was submitted with a well-communicated letter that pulled on the heartstrings — over an all-cash offer.
If sellers won’t budge on price, what else can motivated buyers do now to show they’re serious? And do the old rules still apply?
For starters, if the sellers won’t budge on price, you may have to up your offer to their asking price if that’s the only way they’ll accept it.
While it’s not recommended for most buyers, waiving the inspection contingency or bypassing financing by paying for the home in cash are two ways to show the buyer you are serious and can move fast to close on the home. Brenn-White has had buyers waive the appraisal contingency, which makes the deal move faster, but be aware: As a buyer, you’ll have to cough up the extra cash if the home appraises below what is expected.
What might change for buyers and sellers in 2019?
While no real estate professional we spoke with is confident enough to say it’s now a clear buyers’ market, many do say it’s the closest they’ve seen to one in the past five years. While that’s good news for buyers, they will still have to contend with higher mortgage interest rates than we saw just a few years ago (keep in mind, however, that rates are still low on a historical basis and they did start trending downward again in 2019 after a somewhat sharp rise in 2018). This means sellers will likely not see bidding wars on their homes, as they have in the recent past. And price increases may continue to slow as buyers become choosier. Of course, this will depend on the market, as some areas should remain competitive.