Real estate agents have an urgent message for homeowners: Now is the time to sell. "A lot of people are missing the best market now by waiting," says agent Kris Lindahl.
Home sellers wield formidable negotiating mojo because demand outweighs supply. Buyers outnumber sellers, as relatively few owners are putting their homes on the market. The supply of homes for sale settled at an unprecedented 1.9 months in January, much lower than the six-month supply that marks equilibrium between sellers and buyers.
Sellers call the shots, and the proof is in the pricing. The median home price rose to $303,900 in January 2021, a 14.1% increase compared with 12 months before, according to the National Association of Realtors.
Does that make it sound like sellers have it easy? Most don't, because they're looking to buy, too. Here are some factors sustaining this seller's market, and the decisions that owners will face when listing their homes for sale.
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Housing market gone haywire
It's tempting to blame the coronavirus for the supply shortage — to say that homeowners want to bar strangers from their homes until the pandemic wanes. But the meager supply of existing homes has an additional cause.
Most people sell their home to upgrade, downsize or move to a better location. But with few dwellings on the market, would-be sellers "can't find another house to move to," says Lindahl, CEO and founder of Kris Lindahl Real Estate in the Minneapolis suburb of Blaine, Minnesota.
It’s a self-reinforcing market failure: Would-be sellers worry that they won’t find their next house, so they stay put, exacerbating a shortage that deters other owners from putting their homes on the market.
Rapidly rising prices worsen the problem. Would-be sellers think, "I'm going to end up paying more than I would expect on a comparable home," even when downsizing, says Marc J. Jenkins, a real estate agent with Prime Property Partners, based near Atlanta. So they keep their homes off the market.
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Buy first or sell first?
Sellers have two escapes from the not-enough-homes-to-buy trap:
Buy first, then put up their home for sale.
Accept an offer from a buyer who's willing to wait while they find a place to buy.
"I would say buy first, because this way they can take their time," says Sonia Figueroa, an agent with EXP Realty in Chicago. "They're not feeling rushed, and they're not just going to jump into any house, just because they need to hurry up and move out."
She recognizes that her advice presumes that the seller can secure preapproval for a mortgage to buy the next home while paying the mortgage on the current one. Many people don't earn enough to qualify for two mortgages at once, even briefly. "In that instance, then, unfortunately, it's going to be a situation where we just start looking as soon as they put the property on the market," Figueroa says.
Lindahl endorses option 2, in which the buyer agrees that the sale is subject to the seller finding suitable housing. Buyers shun this contingency in a normal market, but today's market has moved away from normal. Sellers dictate terms.
Sellers can even negotiate a rent-back agreement, in which the buyer closes on the property, then lets the seller stay in the home for a few days or weeks at a daily rental rate, Lindahl says.
Multiple offers are routine
The scant supply of homes benefits sellers in ways besides high prices: Homes sell fast, and sellers need not fix them up.
In a balanced housing market, Jenkins asks sellers how much notice they need before they skedaddle for a showing (a visit by prospective buyers). Nowadays, he dispenses with showings and instead holds open houses.
"At this point, I'm telling my sellers, 'Pick a Saturday,'" he says. "'Give me four or six hours, and I'll sell your house.'" He says 30 people showed up for a four-hour open house recently.
Jenkins tells sellers in the Atlanta metro area to expect "a flurry of offers" within days, and to sort through them and choose the best one "in a week, tops."
A similar dynamic prevails in Chicago, provided the home sellers have kept the place in good shape, Figueroa says. "If they price the property reasonably, then most likely they'll have multiple offer situations," she says.
A house needs to be in good, not great, condition, Figueroa says. Her clients ask what it would take to get top dollar without, say, renovating the kitchen. She replies that they simply need to declutter, clean the carpets and maybe repaint the walls.
Jenkins says that even when sellers do nothing to fix up the house, the winning bidders feel relief instead of buyer's remorse. "There's a heavy emotion of the fear of missing out right now," he says.
Buyers prefer versatility
In the era of COVID-19, buyers prefer certain amenities. Lindahl says that this year, homes replaced gyms, restaurants and offices. The classroom inhabits a nook or a cranny. Families feel sardine-canned. Consequently, the cacophonous open floor plan has lost appeal because occupants need doors to provide quiet and privacy. "Open floor plans aren't the most popular right now because the more sectioned-off a home is, the more they can do in their home," Lindahl says.
On the other hand, buyers in 2021 will settle for the imperfect. "You might have people that say, 'I need extra space for an office, but I'll take a large bedroom and I'll put my desk in there,'" Jenkins says (cue the sad trombone).