Sellers may think that a “hot” market means fast, easy money for their home. After all, a hot market means low inventory combined with lots of buyers looking for the perfect place. In many instances, a hot market does indeed mean a faster sale at or above asking price. However, there are some pitfalls that a seller in a hot market needs to be aware of before watching the money roll in.
One of the “lucky” aspects of a hot market is that outdated or quirky homes sell more quickly than they otherwise would. As buyers become more and more desperate for a home, they become more willing to overlook cosmetic flaws, and may even be more willing to accept pricey fixes such as an old roof or leaky windows.
A seller in a hot market has a better chance of selling a home “as-is” without having to make major updates. Whether you, as a seller, make any significant fixes to the property before listing is best decided through a discussion with your agent to evaluate comparable properties in your neighborhood.
Staging, on the other hand, is recommended even in a hot market. If you want to attract multiple offers on your property right after listing it, staging is probably the number one way to make that happen. In a hot market, buyers need to move quickly and are driven by first impressions and emotions. There is no better way to make someone fall in love with your house than to stage it. Giving it a “wow” factor will distinguish it from the rest of the pack and give it an even better advantage over any other homes that might go on the market at the same time. If you can’t afford to stage, at the bare minimum the property should be de-cluttered and thoroughly cleaned.
Because properties in a hot market tend to sell quickly and have shorter contract deadlines, you need to be prepared to present all relevant documentation to potential buyers right away. Consider getting an inspection done before listing your property so you can present an accurate picture to buyers from the get-go. Have your disclosure documents all prepared and ready to go before the house goes on the market. If you as the seller appear completely prepared to sell, a buyer will feel more confident making a quick-closing offer.
Also, depending on your market, you or your agent may want to line up a title company before putting the home on the market. Although many contracts allow a buyer to designate the title company, having a reputable, efficient title company already “on hold” for the buyer can be helpful and allow the process to move more quickly. A buyer might still want to change the title company, but more often than not they will proceed with the seller’s chosen title company simply for ease.
Many sellers in a hot market will consider selling for sale by owner (FSBO). The impression in a hot market is that buyers are ready to jump at the first home that comes up for sale, and no marketing is needed. Therefore, why pay anyone a commission if the house will essentially sell itself? Although it may be true that there are plenty of buyers, sellers shouldn’t forego the expertise of a professional just yet.
If there is low inventory, buyers are more likely to use an agent to locate homes for sale either before they come on the market or immediately upon listing. Most of the time, agents are looking on the MLS or talking with other agents in order to find new listings for their buyers. Some ambitious agents might search want ads or Craigslist, but they are typically the exception rather than the rule. For the most exposure for your sale, you still want to hire an agent to advertise your home to take advantage of the multiple buyers that are out looking.
Time the placement of your home on the market wisely: Be sure that you will be present or able to review all offers within a short amount of time after the property is listed. It may be advisable to advertise a time and date by which all offers should be submitted. This will allow you to know when you need to be available to review and consider all the offers reviewed (it can be a time-consuming process, so don’t be caught off-guard!).
Plan on responding to the offers within 24 hours. As a common courtesy, if you know you won’t be accepting certain offers, please let those buyers know as soon as possible so they can move on in their search. If you plan to counteroffer, do so in a timely manner. It is not uncommon for the negotiation process to take 24 to 48 hours.
Also, beware the “perfect” offer. Pressured buyers may make promises in their offers that they may not be able to keep just so that they can “capture” your house and put it under contract. If it sounds too good to be true, be aware that as the contract progresses the buyer may encounter unanticipated difficulties in keeping the contractual agreements. The best way to avoid this is to have open dialogue between the agents for the parties. A good seller’s agent should be able to get a feel for the ability and solidity of the buyer through talking with the buyer’s agent. You can also require that the buyer be preapproved and vetted by a lender. Some sellers in a hot market require that buyers be preapproved by the lender of their choice, even if the buyers ultimately work with another lender.
Hot markets see more buyers purchasing with cash or minimal financing than other markets. If you’re lucky, your buyer may not need to be approved for a loan, which would greatly reduce the amount of time your property is under contract. If you decide to accept an all-cash offer, you will likely close in a short amount of time.
Be prepared, at least mentally, for this possibility prior to placing your property on the market. It may even be wise to have a rental lined up if you do not find another property to buy right away.
Hot markets often arise quickly. Appraisers may be comparing your property to properties sold at least a year ago. If no properties in your neighborhood have sold recently, an appraiser may have to look back many years to find comparable sales; sales which will likely be for a lot less than your current offer.
That can hurt you as a seller: If a property doesn’t appraise for the offer price, the buyer will have a lot of difficulty getting a loan for the current offer price. You may be forced to lower your sales price or seek out buyers who are paying cash and do not need the approval of an appraiser to complete the deal. Most of the time, if a property doesn’t appraise and the seller won’t lower the price, the deal is dead, as the buyer has no other options besides a traditional lender to cover the purchase price.
If you have unusual circumstances surrounding your sale--for example, you want to find another home to move into before moving out or a tenant whose lease won’t end for a few months--use the hot market to your advantage. Buyers are more wiling to accommodate sellers’ needs when inventory is low. Once offers come in on your property, you have greater bargaining power to use to accommodate special moving needs. Don’t be afraid of negotiating. Your buyer is just as aware as you are of the limited options on the market.
Just because the market is hot does not guarantee multiple offers for over asking price.
Sure, you’ve heard about the house down the street that sold in two days for $50,000 over asking. But you do not know all the circumstances surrounding that sale. Perhaps it was just a fluke with the perfect buyers coming in for that house. Perhaps there was something highly unique to that property that made it sell so fast and for so much money.
House prices can differ drastically within neighborhoods. Many criteria that aren’t readily apparent from researching the MLS or past sales might make a property sell for more: a great layout, lots of light, decorator colors, or mature fruit trees are all examples of things that might tip buyers into a frenzy that creates high prices and multiple offers.
Your home might not offer these. Take solace in the fact that you are selling in an up market and are more likely to sell for closer to your asking price than you would in a down market. And, if you happen to be one of the lucky ones who garners more from the sale than you ever imagined, feel free to pop the champagne at closing!