Gabbi knew that real estate was the right career from the start. She is now dual licensed in both Kentucky and Ohio. She had her first sale within a month of getting licensed and hit her first million in volume within her first 6 months. She will have her real estate license for the rest of her life. Call her anytime if you have questions about becoming a real estate agent. She loves to share her passion for real estate with others!
Everything You Need To Know About The 2021 Seller's Market
A seller’s market is when there is more demand than there is product. In real estate, houses are the product and there are not enough listings to go around. The demand is created by buyers. Their demand is influenced by interest rates, inflation, and buying patterns.
What do these factors look like now in 2021:
- Interest rates: Low.
- Inflation: Increasing/transitory.
- Buying Patterns: Increase need for stable housing caused by macroeconomic externalities. What do these factors combined create? A seller’s market. How does this market affect buyers and seller?
Impact on the seller:
- Increased Property Value. This is great for sellers because they are most likely getting more money than what they paid for the home. They can make a profit on their investment without making major renovations.
- Multiple Offers. Sellers are getting more than one offer on a typical listing. This means they are relying on their agent to advise to choose the right purchase contract. A seller may initially want to choose the option with the highest price tag but that is not always the offer that is the strongest. You want the offer that has the best chance of making it to closing.
- Less Contractual Costs. These contractual costs include closing costs, title company fees, and home warranty payments. Sellers are getting contracts without these additional fees that directly increase their profit. When you get a contract that includes the seller paying for these items it is deducted from their profit at closing.
- Increase Pressure on Initial Listing Price. In a seller’s market, you cannot get the price wrong on the initial entry to market. If you have a sudden price decrease, the typical buyer is gong to assume that there is something wrong with the property. If you don’t decrease the price and the home sits on the market for more than 30 days, the buyer is going to assume that house has failed inspections. It is crucial to not over price your home in a seller market. A better approach is to set the price an inch below market value and let everyone inflate the price through a multiple offer situation.
- Quick Sales. Sellers have more pressure than ever to act quickly. These listings are going pending within hours on market. Sellers need to be prepared to have housing options lined up as soon as the home goes on sale because the inventory is so low.
- Appraisal Gap. If you pick an offer that is $25K over the listing price, you are likely to think you are winning the game. If your house does not appraise for the price on the purchase contract, then either the buyers or the sellers must cover that gap with cash. Your loan officer can only loan you the amount equal to the house’s appraisal value. Therefore, you have to choose the offer that is able to cover the appraisal gap and not re-negotiate if the appraisal lands under the offer price.
Impact on the buyer:
- Paying Higher Than Market Value. Purchasing a home is a huge decision. First-time home buyers are already nervous to make the switch from renting to buying. Paying more than the original list price is something that worries new buyers. They worry about re-sale and property value decreasing. This is a negative effect of a seller’s market.
- Low Interest on Debt. Having a low interest rate makes up for some of these other inflated costs. As inflation increases, wages (hopefully) increase with it. When you are issued a mortgage with a fixed interest rate that means you will be paying a rate of debt that does not change for 15-30 years with an increased pay. You don’t need to rush to pay of your loan because the interest isn’t out of control. Thus, during an inflationary period, debt becomes “cheap.”
- Pressure to Make Fast Decisions. In this market, you have to be able to pull the trigger. You don’t have the luxury of seeing a house and then waiting 3 days to make an offer. If you don’t go for it, someone else will. If it’s a solid house, then it will not stay on the market.
- Less Loan Options. The competitive environment that’s created by a seller’s market does not allow for different loan options. Conventional loans are king. Conventional loans tell the seller that they have cash for closing, they have a strong down payment, and they probably won’t have a problem covering the appraisal gap. FHA loans have lower down-payment options and stricter inspection requirements. FHA is normally the better route for the buyer but not a stronger offer for the seller. This limits the buyer.
I know that this market seems stressful and never ending but keep faith and keep looking! Find a realtor that is positive, energetic and does not mind showing you 5, 6, or 35 houses. The market will hopefully balance and we’ll begin to see a more even spread of opportunity. To all you buying agents out there... good luck and keep going!
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