What First-Time Buyers Need To Know About Buying In A Seller's Market

Are you thinking about shopping for a home for the very first time? It is a big decision in the best of markets, but the news coming out of the market forecasts can be particularly intimidating to a first-time buyer. You've probably been hearing the phrase "seller's market" for a few years now.

So what in the world is a would-be buyer supposed to do? Is there any hope? In short, absolutely. It may take a little longer, and you may have to be a little more flexible, but if you are patient and determined, you too can find, bid, and close on your dream house. If buying your first home is on your to-do list for 2022, keep reading for advice and strategies that will help put those keys in your hand.

What is a Seller's Market Anyway?

Like any other product, home prices are largely driven by the concept of supply and demand. When the market is flooded with homeowners looking to offload their property, we have a buyer's market – the For Sale signs stay up in the yard longer, and desperate sellers are apt to accept a lower offer so they can finally move on to their next chapter. But that's not what we have right now.

Today, demand is high compared to the relatively low inventory. Those For Sale signs we mentioned go up on the yard and are replaced in record time with Pending and ultimately Sold. Sellers are getting multiple offers, many over the asking price or all-cash.  

It doesn't mean the dream of homeownership for first-time buyers is unattainable or out of reach; it just means you'll need to work hard, make a plan, and take steps to position yourself as an attractive buyer.

What's Working In Your Favor?

It's not all bad news for you. Before we discuss how to be competitive in a seller's market, there are a few promising factors that should provide some welcome encouragement.

First, mortgage rates are still reasonably low. While they have been slightly on the rise since hitting historical lows in early 2021, mortgage lenders are still offering reasonable terms. That will free up a little space in your budget as you consider how much you can afford as a monthly mortgage payment.

In other good news, as a first-time buyer, it's possible you have more flexibility in being able to make a less complicated offer than some of your competitors. Existing homeowners looking to juggle buying and selling at the same time often resort to contingency offers – meaning the sale contract is dependent on a buyer being able to also sell their home (thereby freeing up the equity for a down payment) within a certain timeframe. This can be unappealing to a seller who wants to make the sale most likely to make it over the finish line.

How to Prepare

Before looking up MLS listings and touring homes that are for sale, it's a good idea to do some homework in advance. Most importantly, you need to know how much home you can afford to buy. This will be a combination of how much you have set aside for a down payment and what your budget will allow for a mortgage payment.

You'll want to review mortgage options with your Key Mortgage loan officer and get different payment scenarios based on different sale prices and different loan products. A word of caution – don't forget to include annual taxes, which may be escrowed into your mortgage payment, along with homeowners' insurance.

Once you have a price tag - or at least a range - ask your loan officer for evidence of your ability to get a mortgage. These days, it is not enough to be pre-qualified by an online lender for a mortgage. You'll want to be pre-approved with a letter in hand so that a seller can be confident in your ability to purchase their home. 

Get Ready to Take on the Competition

Now that you have your pre-approval letter in hand, you can start looking at homes that fall within your budget. Because of the nature of a seller's market, it would be unwise to tour homes outside of your price range. It's simply unlikely the seller will come down in price. Stick to what you can afford.

If you are able to circumvent the mortgage process by making an all-cash offer, so much the better. While most of us are not in the position to do so, it does make for an attractive offer to a seller. There is always some level of risk that comes with the mortgage approval process, whereas cash is a sure thing and can make for a quicker sale.

Either way, be prepared to act quickly. It is unlikely you'll have the luxury of waiting a week to make up your mind. We recommend that you have finances lined up and that you get all the information you need to make a decision up-front during your first visit. Love it? Make an offer right away.

You may also want to consider an escalation clause in your bid. An escalation clause allows you to make an offer with some flexibility to increase by a certain amount over a competing bid. Escalation clauses come with ceilings as well, so you can determine just how high you are willing to go. Be sure to discuss it with your real estate agent – not every seller is open to them, but it can give you an edge over the competition without having to overpay.

First-time homebuyers may also consider appealing to the current owner's sentiments. For many, it is emotional to say goodbye to a house, and they will want to see it in good hands. Consider including a letter in your offer, sharing how excited you are about the home, the kind of care you would provide, and what it would mean to you to live there. Someone who raised vegetables might like to know that a fellow gardener will keep the food growing. Any way you can make a connection with the seller can only help your cause.

The bottom line is that first-time homebuyers may be daunted by today's seller's market, but there is plenty of reason to have hope. Give yourself time, be patient, prepare yourself and start looking. When you finally find your dream home, don't hesitate!

When Home Means More, You Need A Team With More To Offer

The Chicagoland market is moving — and if you're ready, you can too. First-time homebuyers in particular will benefit from the knowledge and expertise of a Baird & Warner real estate agent. It may be a new process to you, but we have years of experience and would be proud to help you find a place to call home. 

Whether you're buying or selling your Chicagoland home, we know that home is about so much more than just four walls. Buying or selling a home is a big deal, and our homes have never been more important. That's why your local Baird & Warner agent is with you at every step of the way, from finding the perfect home to connecting you with local experts in mortgage and title. 

When you're ready to purchase your first home, call Baird & Warner. We're here to help.