Unless you’ve slept through the last couple of years, you probably know that the housing market has heated up. Purchasing a home in a competitive real estate market can seem intimidating. It can mean touring more homes than usual, putting in multiple offers, and making concessions that you might not undertake if the market were softer. But with patience and some smart strategies, you can succeed.
Here’s how home shoppers can navigate a hot market and snag a great place to live.
Key Points
• A hot market has low inventory and high demand.
• Buyers should list must-haves and nice-to-haves to stay focused.
• Waiving contingencies can attract sellers.
• Offering all cash can increase the chances of winning a bid.
• Buyers should consider writing a heartfelt letter to the seller.
What Exactly Is a Hot Market?
To put it in its simplest terms, a “hot” market is one when real estate inventory is low and demand is high, meaning many other buyers are looking to purchase a home as well.
It can often mean that homes enter the market and stay only briefly before selling at or above asking price. In general, if homes remain for sale for four to six months, it’s a balanced market of buyers and sellers.
However, if homes are selling faster than that, say in mere days or weeks, it’s typically considered a hot — or seller’s — market. If homes are sitting for longer than that, it’s regarded as a buyer’s market.
A hot market may sound tough to enter, but there are a few ways buyers can stand out from the pack and, with luck, win over a seller. (Hint: Start the process of getting approved for your home loan so you’re prepared to make an offer when the time comes.)
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with as little as 3% down.
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Hot House Market Buying Tips
1. Hiring an Agent Who Can Take the Heat
Hot market or not, a great agent can make all the difference in the home-buying process. An agent can help a buyer navigate choppy waters and will be the person buyers can turn to with questions about the market, the homes they are looking at, and much more.
A buyer’s agent is legally bound to help the buyer. A good agent will know what to look for in a home, may be able to recommend new neighborhoods buyers haven’t thought of, and can steer shoppers to good deals and away from bad ones.
2. Listing Musts and Wants
In a hot market, buyers may need to be more flexible about their ideal home and location. Before looking at homes, it might be wise to create a list of “must-haves” vs. “nice to have” items on your home-buying wish list.
If buyers know they can’t live without at least two bedrooms and two bathrooms, they should put that on their “must have” list. If they would like to have an in-home office but don’t need it, they can add that to the “nice to have” list.
It will probably help buyers to go through every item — garage, square footage, yard space, fireplace, schools — and draw their line in the sand. If a home doesn’t have everything on their “must” list, they can move on quickly. But if a property meets all the “musts,” perhaps it can have the “nice to have” items later via renovations.
Recommended: First-Time Homebuyer Guide
3. Adding Sweeteners to an Offer
In a hot market, adding a few perks to a home offer can further tempt the seller because every little bit helps when there is the potential for multiple offers.
For example, sellers eager to move on could be enticed to go with buyers who can act quickly. To offer a quick close, buyers can ask their real estate agent to find out the standard closing time for the home and add to their offer that they are willing to close faster.
4. Offering All Cash
This most certainly isn’t an option for everyone, but if a buyer can offer all cash for a home, this may be the thing that tips the odds in their favor of winning a bid.
Sellers typically prefer all-cash offers because they present fewer hurdles than buyers who are going with a lender.
“Cash is king,” maybe you’ve heard. With a cash offer, there is no waiting for preapprovals or approvals.
5. Waiving Contingencies
Looking to stand out further? Buyers could try waiving mortgage contingencies where they can.
There are lower risk contingencies people can waive, such as homeowner association contingencies, but there are also higher risk ones for buyers that could convince a seller to choose their offer.
For example, buyers can waive their right to an inspection. This means they will not require a professional inspector to check over the home for potential repairs. By waiving this contingency, though, buyers will be purchasing a home with many unknowns and taking on the full risk of a property that may need hidden and pricey home repairs.
Before waiving any contingency, it’s a good idea for buyers to have a long talk with their agent to ensure they are still protecting their rights and feel comfortable with any consequences.
Recommended: How to Rent in a Hot Housing Market
6. Giving It a “Best and Final” Offer
In a hot market, odds are buyers won’t win with any bids that are under asking price. If the house is right when it comes time for the best and final offer, buyers may want to consider trying to give it their all. That would mean coming in at asking price and often going over.
This is an important consideration when looking at homes in a hot market. Buyers may want to look at homes under their very top budget so they have room to negotiate up to, or over, asking.
As with contingencies, buyers should never go into a price range they are uncomfortable with or cannot afford in the long run. (Want to see how much a home could cost over the lifetime of a loan? Check out an online mortgage calculator to get an idea.)
7. Writing an Epic Letter
There is one more way to try to win a seller over (perhaps in a bidding war): by pulling on their heartstrings.
When putting in an offer, many real estate agents advise their clients to write a short letter to the seller on why they want to purchase the home.
Remember, selling a home can be emotional, and letting go of all the memories built in the space can be hard on the seller. But if they know that the next person to live in the home will love it as much as they do, they may be more willing to part with the property.
Buyers might want to express what they love about the home and how they plan to continue making happy memories there. As a bonus, buyers can try including a picture of their family with the letter so the seller thinks of them as people rather than just an offer.
8. Not Getting Discouraged
In a hot market, it’s important to stay patient. Going through the process could mean putting in multiple offers on multiple properties and losing out more than once.
Prepare Your Finances for a Hot Market
Before putting in an offer on a home in a hot market, buyers will want to have all their fiscal ducks in a row. That could mean shopping for the lender that’s right for them and/or getting a preapproval letter from a mortgage lender to show they are serious buyers who have their financing lined up.
Different lenders will likely offer different rates, terms, and perks, which buyers can weigh to decide which mortgage lender is right for them.
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The Takeaway
With some preparation, buyers can effectively compete in a hot real estate market. Having a trusted real estate agent, knowing what you absolutely must have in a home, and preparing your mortgage loan funding in advance can all help buyers compete for and win their dream home. You’ll want to find a mortgage with competitive rates, flexible terms, and low down payments.
Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.
FAQ
What does a buyer do if a seller submits a counteroffer?
If a home seller responds to a would-be buyer’s offer with a counteroffer, the buyer’s first step is to make sure they understand what the seller wants. It isn’t always more money. Sometimes a seller wants the buyer to make a larger deposit or agree to a later closing date. It’s also possible the seller wants the buyer to agree to waive contingencies, such as the right to a home inspection. Read the counteroffer carefully and consult with a trusted real estate agent and/or real estate lawyer to decide if you can agree to the terms.
Can I make an offer below the asking price in a hot market?
It is possible to make an offer below the seller’s asking price in a hot market, but you should be willing to lose the home to another bidder. One thing that will help your low bid: if your offer is all cash, or if you agree to waive contingencies, such as the right to a home inspection.
What’s the best way to submit an offer in a hot market?
When submitting an offer on a home in a hot market, it’s best to accompany your offer with a genuine and heartfelt offer letter. Compliment the property, especially any personal touches in the decor or style of the home that you noticed on your tour. Try to make a connection with the seller — for example, perhaps they raised children in the home and you hope to raise kids there. Thank the seller for considering your offer. Ask your real estate agent to review the letter before it is sent with your offer.
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
This article is not intended to be legal advice. Please consult an attorney for advice.
Qualifying for the reward requires using a real estate agent that participates in HomeStory’s broker to broker agreement to complete the real estate buy and/or sell transaction. You retain the right to negotiate buyer and or seller representation agreements. Upon successful close of the transaction, the Real Estate Agent pays a fee to HomeStory Real Estate Services. All Agents have been independently vetted by HomeStory to meet performance expectations required to participate in the program. If you are currently working with a REALTOR®, please disregard this notice. It is not our intention to solicit the offerings of other REALTORS®. A reward is not available where prohibited by state law, including Alaska, Iowa, Louisiana and Missouri. A reduced agent commission may be available for sellers in lieu of the reward in Mississippi, New Jersey, Oklahoma, and Oregon and should be discussed with the agent upon enrollment. No reward will be available for buyers in Mississippi, Oklahoma, and Oregon. A commission credit may be available for buyers in lieu of the reward in New Jersey and must be discussed with the agent upon enrollment and included in a Buyer Agency Agreement with Rebate Provision. Rewards in Kansas and Tennessee are required to be delivered by gift card.
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