The United States has seen some of its hottest-ever real estate markets in the last several decades. Market forecasts can change daily, but most places still favor sellers, which presents unique challenges for homebuyers.
Home prices continue to rise steadily, inventory never seems to last long, and above-asking-price offers are becoming more common. There’s no denying it; buyer’s agents have their work cut out for them. It can be hard, but there’s no greater reward than helping your clients find their dream house when the competition is fierce.
Are you up for the challenge? Keep reading to learn how to navigate a hot market as a buyer’s agent.
Know When the Market Is Hot
The first step is identifying that the current market is hot
Staying on top of the most recent real estate trends is one of your most important jobs as a real estate agent. To be successful, practice reading housing data on the daily. A structured routine will help you learn what hot patterns look like and let you come out ahead of the competition.
But how do you know when the market is hot?
You’ll typically see prices rising quickly, homes selling fast, and in-full cash offers routinely beating out conventional financing.
Those are the qualitative indicators of a hot market. You can expect a hot market when supply significantly overpowers demand.
The days supply of inventory (DSI) is one metric that can help you measure this. To calculate the DSI, divide the number of homes on the market by the number of homes selling each month.
If there were 1,000 homes on the market and 100 selling each month, your market would have 100 days of inventory.
Experts generally agree that if a market is well-balanced between supply and demand when there are six months of available inventory.
When there are more than six months of inventory, demand outweighs supply and you’re in a buyer’s market. If there are fewer than six months, you’re in a seller’s market.
Related: Buyer’s Market vs Seller’s Market: Which Market Should You Invest in 2022
Going back to the example above, 100 days is just over three months of inventory, pushing the theoretical market in favor of sellers.
Understand Your Client’s Goals
Understanding your client’s goals is just as important as evaluating current trends. After all, real estate is just as much about people as it is about property.
You’ll encounter two main categories of clients as a real estate agent: investing buyers and primary home buyers.
Investors are looking for lucrative rental opportunities, whereas primary home buyers are searching for personal property. Understanding the goals and motivations of each type of buyer will help you move efficiently in a hot market.
Common Investor Goals
Investing buyers can come with a plethora of strategies and goals. Generally speaking, they’re looking to:
- Buy a property and then quickly flip it for a profit.
- Hold onto a property for a long time as an income-producing rental.
- Merge the two by buying a property and fixing it up while tenants are living in it.
Regardless of whether or not investing is their full-time job, investors run their portfolios like a business. They want to maximize cash flow, minimize expenses, and build equity.
You can help them achieve this goal by identifying the best investment opportunities in your area.
Start by looking for areas within your market or close to it where supply outweighs demand. To do this, you’ll need to take a more granular look at your region’s housing information.
Using tools like the real estate heat map can help spot hard-to-see data at just a glance.
Investors want to get in on the ground floor of the next real estate trends. For example, if a suburb on the edge of your city has a surplus of affordable homes and a large population of renters, this would be a great place to shop with your client.
Related: How to Perform a Real Estate Market Analysis
Common Residential Goals
Since investors typically don’t live in the location in which they’re buying, they are often more flexible on the area.
People shopping for a primary home have different needs, though. They’re building their lives around the home they buy, so it needs to be in an area they love, with the amenities they need.
This is where your local insight as an agent is crucial.
If your buyer has their heart set on the hottest neighborhood in town, scour the area for locations that offer similar features.
A young family, for example, might want a home with the family-friendly perks of the suburbs and the fast commutes and ample amenities of a big city. Become a local expert on the small details of every neighborhood in your city. If you can’t find your clients a home in their dream area, you should know where to find one just like it.
Even better, you can offer them exclusive access to off market properties.
Manage Your Client’s Expectations
Speaking of dream homes, a hot market demands realistic expectations.
Be wary of letting your clients get emotionally attached to any property. Hot markets get highly competitive, and there’s nothing worse than having a house pulled out of your reach by a last-minute cash offer.
Homebuying will always be exciting for your clients. And it should be! Your role as a real estate professional is to keep them excited by establishing realistic deadlines.
Allowing unattainable expectations to soar is a surefire way to zap buyer motivation.
Rely On Your Team
In a hot market, you’ll need all the help you can get.
Your team should always be your number one resource. If you’re a new agent, consider finding an experienced agent to take you under their wing. A mentor can introduce you to proven strategies for showing houses, writing contracts, and more.
Deals move fast in a hot market, so look for administrative help, too. A good transaction coordinator will ensure all the paperwork is in order and help you schedule appointments with inspectors and appraisers.
If you’re already an experienced agent, use your network of colleagues to get a competitive edge. Sharing intel on market conditions, open houses, and new listings with other agents in your area can give you a better idea of what’s available.
Sure, hot markets are competitive for agents, too. But isolating yourself from the competition takes you out of the game. If you’re willing to help other agents, other agents will be more willing to help you as well.
Be Informative About Financing
Buyer’s agents always walk a fine line when it comes to discussing finances with clients. Managing your clients’ finances isn’t your job, but maintaining a wealth of knowledge about homebuying finance questions will help you set your clients up for success.
Be prepared to answer questions about credit, mortgages, and home prices. You might need to offer guidance if your client is headed for financial trouble.
Your clients need to have their credit in top shape when buying a house. Ideally, their score needs to be high enough to be preapproved for a loan.
Large credit purchases need to wait during the homebuying process. Keep an eye on clients’ taking on too much debt as they might not know the importance of optimal credit utilization rates.
Related: Mortgage Rates Watch: June 2022
Win Bidding Wars With Non-Financial Deals
No hot market would be complete without a bidding war. Sure, you can win a bidding war by offering more money, but that’s not always an option.
You’ll need to get creative if you find yourself in a situation where your clients are up against all-cash offers. Sellers love cash, but there are non-financial factors that can incentivize them even more.
One way to set your offer apart is by asking the sellers for a rent-back agreement. This would allow the sellers to stay in the house for a certain period of time after closing while they look for a new house.
When somebody sells during a hot market, they then become a buyer – and you’re well aware of how challenging that can be. Allowing them to stay in the house for a few extra weeks is occasionally more valuable than cash.
You also have the option to waive maintenance contingencies.
No, you should never skip the inspection, but you can accept inexpensive repairs instead of negotiating them out of the asking price. Keeping things easy for sellers makes your client a much more attractive buyer.
Work Smarter For Buyers in a Sellers’s Market
Helping buyers thrive in a hot real estate market is no easy task. It takes insider market knowledge, alignment with clients’ goals, empathy for their expectations, and keen financial insight. You have to be competitive too, especially in cash-dominated markets. The best way to learn is by doing. Get out there and help your clients win more today!
This guest post has been contributed by Bob and Ronna.