Who could have imagined that a global pandemic would be a catalyst for one of the most dramatic upswings the real estate industry has seen in recent years.
As homes became our office spaces, classrooms, and mask-free sanctuaries, many Americans realized they needed a new setup. This hyper-focus paired with record-low mortgage rates inspired many buyers to step into the market — far exceeding the available inventory of homes.
Still, even with skyrocketing demand, homeowners selling in a seller’s market should do their due diligence to ensure they’re selling their home for the best price possible. We’ll share seven tips to make the most of today’s hot seller’s market.
What is a seller’s market, exactly?
High buyer demand and low housing inventory create a seller’s market. As mentioned above, several factors have inspired the current housing sales boom:
Record-low mortgage rates
A pandemic-driven desire for more living and outdoor space
Inadequate inventory, partially due to the lack of building materials and labor slowing down new construction
A seller’s market often means bidding wars, higher prices, and faster sales for homeowners. And while this is all good news for sellers, you’ll still need to be strategic if you want to sell your home for the most money possible.
1. Cut your budget for cosmetic upgrades like staging and renovations
In seller’s markets, we encounter many clients who overinvest in getting their home “market-ready.” With fewer properties to choose from, eager buyers are more willing to overlook outdated interiors and cosmetic issues than they would in a buyer’s market where beautiful homes are a dime a dozen.
Don’t spend the money! If you insist on making any updates, go for carpet and paint because they are the cheapest repairs you can do to yield the most value for the price. If you put in a brand new kitchen, for example, you’re not going to increase your sales price by $10,000 because you renovated it.”
Here are some quick and easy ways to make your home more inviting without spending a lot of cash:
Paint the main living areas a neutral gray or beige.
Set a few pots of colorful flowers near the front door.
Store loose items in decorative bins.
Hide electrical cords and wires out of sight.
Put photographs, mementos, and other personal items away.
2. Plan your next move before you sell
In a seller’s market, homeowners are often pleasantly surprised to find their property sells much quicker than anticipated. When making plans to list your home, prepare for your next move at the same time. Pre-pack whatever you’re taking to your next home, and donate, sell, or toss whatever you don’t want. Clearing out the clutter will open up your room and make your home appear more spacious too!
You should also begin searching for your next home as soon as you’re ready to sell. If you haven’t started looking for your next home, have a backup plan in place in case your home sells quickly.
You may consider renting for a bit so you can take your time finding the right property. You can also negotiate a seller rent-back so you can remain in your home as a renter after you sell it.
3. Strategically price your home to encourage multiple offers
Even in a seller’s market where bidding wars are common, you need a nuanced pricing strategy to ensure you sell your home for the most money possible.
While it’s tempting to reach for the stars with a high listing price, note that overpricing your home could turn off informed buyers and leave your home sitting on the market. And even if a buyer agrees to a sky-high price, they may not be able to close if the appraisal comes in low since lenders won’t typically approve a loan larger than a property’s appraised value.
On the flip side, if you price your home too low, you might not sell your house for as much as you could given the hot market.
The goal is to find the sweet spot: a price that reflects a home’s fair market value based on the size, floor plan, and condition. Your real estate agent will round up recently sold comparable homes, or “comps,” in Competitive Market Analysis (CMA) to determine how much your home is worth in the current market.
Listing a home at around $10,000 to $15,000 below fair market value is a common strategy in a seller’s market to create a bidding war. It’s a good way to generate lots of offers and get a fast sale at or over the listed price.
Buyers sense they are getting a good deal and are willing to put their hat in the ring, especially in a competitive seller’s market where there are fewer options to choose from. Just don’t go any lower than a price you would be willing to accept if you hypothetically only received one offer.
4. Make the most of a bidding war
Bidding wars are common in a seller’s market. With fewer options to choose from, buyers flock to desirable properties that check most of their boxes. As a seller, you’ll need to evaluate your offers and respond carefully to leverage the best deal possible.
Three ways to handle a multiple offer situation:
Accept the best offer. This works when an offer is head and shoulders above the rest. For example, say you receive a cash offer that’s significantly higher than the other offers which the buyers require financing. Not only is this buyer’s offer higher, but it’s also more likely to close smoothly without a lender involved.
Inform buyers of the competition and encourage stronger offers. Typically, real estate agents won’t disclose the offer amounts to competing buyers. Instead, they’ll inform all buyers that other offers are on the table and encourage them to submit their highest and best offer before a set deadline. Some buyers may include an escalation clause in their second offer, indicating that they’ll automatically increase their price above the best competing offer. Escalation clauses tend to stipulate the increments by which the price increases and how high the buyer is willing to go.
Respond to one offer with a counteroffer, and set the others aside until the buyer responds. A seller may opt for this strategy if they receive an outstanding offer but aren’t yet ready to turn away other offers. For instance, maybe you get an offer with an excellent price, but the proposed moving date doesn’t align with your plans. You’d want to counter to see if the buyer can accommodate before committing to the deal.
Thankfully, you don’t have to determine the best response on your own — your real estate agent will be by your side to help.
5. Remember the highest offer is not always the best
Most sellers gravitate towards the highest offer. But we caution our clients that the highest offer is not always the best offer. Here are the main components of a strong offer in a seller’s market:
A cash offer
Even if a cash offer is not the highest, it can still be the best for a few reasons. When a buyer pays in cash, they don’t need to prove the home’s value to a lender, taking the appraisal out of the equation. Skipping this step is beneficial in a hot seller’s market where prices are rising faster than appraisers are willing to recognize — you don’t need to worry about a low-appraisal threatening the deal.
A cash offer also tends to speed up the sale. It takes an average of 46 days to close on a home loan. If you sell to a cash buyer, you can expedite your closing date by a month or more.
A large down payment
In Canada, the minimum down payment is 5% for properties up to $500,000, but some lenders may require more. As a seller, note that the higher the buyer’s down payment, the better. A buyer with a large down payment has to borrow less, reducing the risk they won’t qualify for their loan.
Few to no contingencies
In real estate, a contingency is a requirement outlined in the purchase agreement that must be met for the sale to close. If the buyer’s contingency is not satisfied, they can walk away from the deal with their earnest money. As a seller, you want an offer with few contingencies since these slow down the sale and act as “escape hatches” for buyers to back out.
The most common contingencies include:
Appraisal contingency: The home must appraise for an equal or higher value than the buyer’s offer for the sale to close.
Financing contingency: The buyer can back out of the deal if they are unable to secure financing.
Home sale contingency: The buyer only moves forward with purchasing the property if their own home sells.
Inspection contingency: The buyer requires a home inspection and may cancel the sale if the seller does not agree to complete or pay for necessary repairs.
An offer with fewer contingencies is less likely to fall through, making it more appealing. In a seller’s market, buyers are often more likely to remove contingencies, especially if they know they’re up against competing offers.
In a seller’s market, buyers may throw in concessions, or incentives, to encourage the seller to choose their offer. For example, the buyer may offer to cover closing costs that the seller would customarily pay.
Flexible moving date
In a seller’s market, sellers may sell their current home faster than they’re able to buy their next one. That’s when a flexible moving date or rent back comes in handy. Buyers willing to budge on this point and give the seller some breathing room to house hunt may just push their offer to the front of the line.
6. Anticipate appraisal issues if you accept a high offer
Issues with home appraisals can be common challenges that come with selling in a seller’s market. Pricing a home on the higher end of market comps is all well and good, but the home must appraise for equal or less value than the buyer’s offer in order for the buyer’s lender to approve the loan.
“What we’re noticing right now are agents and homeowners trying to push the envelope on value. The inventory is so low, and the demand so high driving prices up. But of course, lenders and appraisers are like, let’s pump the breaks — this seems too high for the area.”
When a property appraises below the asking price, there are a few options to address the gap between the appraised value and the sales price:
The buyer pays the additional funds out of pocket. A seller may offer to cover some of the buyer’s closing costs to free up some of the buyer’s cash to cover the difference.
The seller reduces the sale price to match the appraised value.
The seller and buyer cancel the sale and the seller puts the property back on the market.
The seller and buyer challenge the appraisal with a Reconsideration of Value.
Your agent can advise on what the best strategy is for your home sale:
“As a real estate agent, my job is to educate the seller as to when it’s smart to just put it back on the market or say, hey, this is the best appraisal we’re going to get, so let’s reduce, take it, and move forward.”
7. Hire a top real estate agent who understands the demands of a seller’s market
Choosing the right real estate agent is by far the most important decision you’ll make when selling in a seller’s market. While any agent can assist you sell your home, only a top agent can win you the best price possible.
They are going to fight for your property value. They know how to address the appraisers to get that value where it needs to be to achieve a good closing. We advise sellers to work with an agent who specializes in listings. With more than 20 years in the business, and more than 34 million dollars in closings last year, Island Homes Group knows from experience.
Waiting for the right time to sell? In a seller’s market, there’s no time like the present
Low inventory and high buyer demand make seller’s market conditions the ideal time to sell. With a bit of preparation for a quick sale, expert agent guidance, and patience to explore multiple offers, sellers can get the best deal possible for their property.